Annual Report and Accounts 2012

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Richemont

Annual Annual Report and Accounts 2012

Report and

Accounts

2012

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Richemont is one of the world’s leading luxury goods groups. The Group’s luxury goods interests encompass some of the most prestigious names in the industry, including Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, Alfred Dunhill, Montblanc and Net-a-Porter. Each of Our Maisons™ represents a proud tradition of style, quality and craftsmanship which Richemont is committed to preserving.

1 Financial and operating highlights 28 Financial review A detailed commentary on the Group’s 2 Executive Chairman and financial performance Chief Executive Officer’s review 34 Corporate responsibility

4 Business review 35 Peace Parks Foundation 4 Jewellery Maisons 5 Cartier 38 Corporate governance 7 Van Cleef & Arpels 42 Board of Directors 8 Specialist Watchmakers 47 Group Management Committee 9 A. Lange & Söhne 10 Baume & Mercier 53 Consolidated financial statements 11 IWC 12 Jaeger-LeCoultre 108 Company financial statements 13 Officine Panerai 14 Piaget 113 Five year record 15 Ralph Lauren Watch & Jewelry 16 Roger Dubuis 115 Statutory information 17 Vacheron Constantin 116 Notice of meeting 18 Montblanc Maison 19 Montblanc

20 Other Businesses 21 Alfred Dunhill 22 Azzedine Alaïa 23 Chloé 24 Lancel 25 Net-a-Porter 26 Purdey 27 Shanghai Tang

Cautionary statement regarding forward-looking statements This document contains forward-looking statements as that term is defined in the United States Private Securities Litigation Reform Act of 1995. Words such as ‘may’, ‘should’, ‘estimate’, ‘project’, ‘plan’, ‘believe’, ‘expect’, ‘anticipate’, ‘intend’, ‘potential’, ‘goal’, ‘strategy’, ‘target’, ‘will’, ‘seek’ and similar expressions may identify forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside the Group’s control. Richemont does not undertake to update, nor does it have any obligation to provide updates or to revise, any forward-looking statements.

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Financial and operating highlights

Group sales (€ m) Sales by business area (% of Group)

2012 8 867 2012 2011 6 892 52 % Jewellery Maisons 2010 5 176 26 % Specialist Watchmakers 8 % Montblanc Maison 14 % Other Businesses

Operating profit (€ m) Jewellery Maisons (€ m)

2012 2 040 2012 4 590 2011 1 355 2011 3 479 2010 830 2010 2 688

Earnings per share from continuing operations (€) Specialist Watchmakers (€ m)

2012 2.756 2012 2 323 2011 1.925 2011 1 774 2010 1.076 2010 1 353

Dividend per share Montblanc Maison (€ m)

2012 CHF 0.55 2012 723 2011 CHF 0.45 2011 672 2010 CHF 0.35 2010 551

Other Businesses (€ m)

2012 1 231 2011 967 2010 584

• Sales increased by 29 % to € 8 867 million at actual exchange rates and by 30 % at constant currency. • Operating profit rose by 51 % to € 2 040 million. • Operating margin reached 23 % of sales. • Healthy cash flow generated from operations: € 1 789 million. • Proposed dividend: CHF 0.55 per share, representing an increase of 22 %.

Richemont Annual Report and Accounts 2012 1

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Executive Chairman and Chief Executive Officer’s review

Johann rupert, Executive Chairman and Chief Executive Officer

OVERVIEW OF RESULTS DIVIDEND We are pleased to report that Richemont has achieved strong Based upon the good results for the year, the Board has proposed sales growth across all segments and all geographic regions, an ordinary dividend of CHF 0.55 per share. This represents an despite a volatile and diverse economic environment. increase of 22 % compared to last year.

The Group’s Jewellery Maisons and its Specialist Watchmakers BUSINESS DEVELOPMENTS have reported record sales and profits, despite the strength of During the year, our Maisons made further, substantial the Swiss franc and the rising cost of precious materials and investments in their own watch and jewellery-making facilities. input costs. Montblanc continued to grow and reported increased Increasingly, in-house innovation and manufacturing is expected profits. Richemont’s Fashion and Accessories Maisons also from fine watchmakers and fine jewellers. In-house manufacturing performed well. Net-a-Porter continues to enjoy sales growth also helps our Maisons react quickly to changes in the economic above the Group average, while at the same time investing in environment. The hiring and training of skilled craftsmen and structural expansion. women that follow from this internalisation of manufacturing is most notable in Switzerland, where we now employ some Further to the announcement in January, the Group’s operating 7 700 people. profit is significantly higher than the prior year: at € 2 040 million it is 51 % above last year’s level. Around the world, our network of dedicated boutiques increased by 72, primarily in mainland China, while in Europe and the These performances reflect the commitment and efforts of all United States, many of our Maisons’ existing boutiques were our colleagues, the strength of our Maisons and the leverage renovated. In parallel, we have continued to strengthen our watch provided by the Group’s shared services. distribution network, with fewer partners but more partnership.

2 Richemont Annual Report and Accounts 2012 Executive Chairman and Chief Executive Officer’s review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Behind the scenes, the integration of supply chain processes and The enduring appeal and the development potential of each Group-wide IT systems continued to improve customer service of our Maisons lead us to focus our investment on the Group’s through better product availability and shorter delivery times. organic growth. Investments are primarily dedicated to the In this regard, the Group’s distinct businesses – our jewellers and expansion and integration of the Maisons’ respective manufacturing watchmakers, our fashion houses and Net-a-Porter – have specific facilities, as well as growth in their retail networks. Selective operating requirements. Accordingly, tailored IT solutions have boutique openings will be focused in growth markets and in been developed that suit their respective needs. tourist destinations around the world.

PEACE PARKS FOUNDATION Our Maisons remain entrepreneurial and innovative businesses On pages 35 to 37 of this report, you will be able to read more at heart. More than ever, we are convinced of their resilience about the commendable work of the Peace Parks Foundation and long-term prospects. We therefore look forward to the over the past 15 years. Richemont is proud to be associated future with cautious optimism. with the inspiring vision of creating and protecting a network

of ecosystems that traverse Southern Africa’s artificial political

borders. We invite you to join Richemont in supporting the Foundation’s work.

OUTLOOK Johann Rupert Although sales in the month of April were 29 % above the Executive Chairman and Chief Executive Officer comparative period, or 20 % at constant exchange rates, we are mindful of the unstable economic environment, particularly Compagnie Financière Richemont SA in the euro zone. GENEVA, 16 MAY 2012

Richemont Annual Report and Accounts 2012 3 Executive Chairman and Chief Executive Officer’s review

Key results

Sales (€ m)

2012 4 590 2011 3 479 2010 2 688

Operating profit (€ m)

2012 1 510 2011 1 062 2010 742

Percentage of Group sales

2012 Jewellery Maisons 52 %

Richemont’s Maisons

4 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1847 13 rue de la Paix Paris France Chief Executive Bernard Fornas Finance Director François Lepercq www.cartier.com The Maison Cartier, with over 160 years of rich history, stands out as the quintessential Luxury Maison defining the notion of true timeless luxury. Often referred to as ‘the King of Jewellers and the Jeweller of Kings’, the success of Cartier lies with its ability to strike a delicate balance between being known by many, owned by few and dreamt about by all.

The creativity and distinctive style which have been at the heart of the Maison’s • The Sortilèges collection, presented on-going leadership in jewellery were once in Rome, featured 70 unique pieces again highlighted during the unveiling of • In fine watchmaking, métier d’art the latest Cartier High Jewellery collection. techniques were used for the first time The Sortilèges collection, presented in • Larger, better located flagship Rome to a select group of connoisseurs and boutiques were opened clients, demonstrated the Maison’s great artistic energy as well as the strength of its manufacture. With no less than 70 unique Cartier’s great creative flair in jewellery was pieces inspired by the universe of fragrances matched by a recognised tour de force in fine with Mediterranean colours and scents, watchmaking. Launched at the 22nd edition of Cartier has caught the imagination of many the Salon International de la Haute Horlogerie, and generated much desire. The collection Cartier’s latest fine watchmaking collection presented in the Villa Aurélia was emphasised the great maturity of the Maison complemented by a selection of over 250 pieces in its watchmaking creative process. Ranging of High Jewellery covering the broad creative from exclusive High Jewellery timekeeping repertoire of the Maison’s distinctive style. pieces to innovative watches, using métier d’art techniques for the first time, to captivating Other jewellery highlights in the year new feminine aesthetics with the Delice included the Cartier Naturellement collection watch, this collection confirmed the Maison’s presented in both Europe and the Middle distinguishing craftsmanship. Moreover, East, then the Asian region at the beginning with twelve new haute horlogerie pieces of 2012. This striking collection, built around including the revolutionary Astrotourbillon Cartier at 13 rue de la Paix. The boutique’s the interpretation of fauna and flora themes and the Multifuseaux, Cartier also asserted central staircase, leading to the historic salon inherent to the Maison’s rich creative history, its prime legitimacy in the extremely selective was symbolised by the distinctive features world of complication movements. of Cartier’s eternal icon: the Panther. Colour, subtleness and natural lines were all Luxury accessories, including clocks, leather characteristic features of this unique collection. goods, eyewear and bespoke perfumes perfectly complemented Cartier’s collections of jewellery and watches. In leather goods, new editions of the Marcello Bag supported the timeless offer for women, while new editions of the Première collection reinforced the successful masculine eyewear line.

Richemont Annual Report and Accounts 2012 5 Business review

The Cartier Collection plays the distinctive role of highlighting the Maison’s illustrious heritage. Each year, it tours some of the world’s most august museums, displaying vintage pieces from the Maison’s 160 years of pioneering creativity. During the year, particular focus was put on Cartier’s rich watchmaking history with the Time Art exhibition. The exhibition reached Zurich and Singapore and will tour a series of other venues in America, Asia and the Middle East in the years to come. The Cartier Manufacture, located at the heart of the The Maison’s worldwide network of boutiques In addition to these major public exhibitions Swiss watchmaking industry, in La Chaux-de-Fonds and specialised retailers was further enhanced and the exclusive client events surrounding the to achieve excellence in presentation and Maison’s High Jewellery collections, Cartier service. With a stable network of some 300 hosted or sponsored a wide range of events Cartier boutiques, the Maison has set its around the world. These events included primary focus on increasing its visual presence polo tournaments in Windsor, Saint Moritz, through striking facades as well as refining Dubai and Singapore; the Women’s Forum in comfort inside, with larger spaces, new Deauville; and the Palm Springs International dedicated areas and great attention to detail. Film Festival. These events were complemented For instance, the new Bridal and Haute by alluring advertising featuring Cartier’s Horlogerie areas have largely contributed inimitable red box along with its iconic to the improvement for clients. The upgrading Panther figure. of boutiques continued with selected boutique closures and the opening of larger, better located new retail flagships. Well into its third decade, the Fondation Cartier reinforced its high international standing in the field of contemporary art at Art Basel and Miami Art Basel. In Paris, the Fondation hosted more ground-breaking exhibitions such as Vaudou, presenting Bernard Fornas exceptional Art Premier pieces from the Chief Executive collection of Jacques Kerchache, as well as an exhibition on the links between mathematics and art with contributions from artists such as David Lynch and Raymond Depardon. The Maison continues to benefit from the Fondation’s prestigious position in the art world.

6 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1906 22 place Vendôme Paris France Chief Executive Stanislas de Quercize Finance Director Burkhart Grund www.vancleef-arpels.com For more than a century, Van Cleef & Arpels’ creative spirit and savoir-faire has been dedicated to femininity and the magic of exceptional stones. Each new collection of jewellery and timepieces tells a unique story, an original tale.

Bals de Légende, the High Jewellery collection of the year, celebrated the world’s • Exquisite, new High Jewellery creations most exuberant high society balls of bygone were successfully launched years in the most opulent of contemporary • The Bridal collection celebrates settings. The exquisite new creations were romance with ingenious forms and presented for the first time in London before enchanting diamonds travelling to China and the US for exclusive • Over ten new boutiques opened, Bals celebrations. including Jeddah, London and Taiwan Van Cleef & Arpels draws endless inspiration from nature’s infinite forms and colours: The Maison reopened its Hong Kong Maison the Oiseaux de Paradis High Jewellery during the year and opened another ten collection celebrates the bird’s majestic boutiques – including Jeddah, London and and delicate beauty while evoking dreams Taiwan – in keeping with its exclusive of far-away lands; the Papillons collection distribution policy. The poetic side of the expresses renewal, love and the fragility of Maison’s personality and its affinity to nature itself. Les Voyages Extraordinaires natural forms were epitomised in the Maison’s collection plays with the magical, imaginary enchanting expression in other medias: the stories of Jules Verne: fabulous journeys to Van Cleef & Arpels on Place Vendôme, Paris eternal beauty of jewellery resting upon the places filled with wonder. momentary beauty of a flower or a butterfly. The Maison’s Bridal collection celebrates Van Cleef & Arpels’ programme to exhibit romance with ingenious forms and enchanting its patrimonial collection included ‘Set in diamonds. The Perlée bijoux collection displays Style’ at New York’s Cooper Hewitt Museum. its heritage of complex forms and techniques, The patrimonial collection’s pieces draw complementing perfectly the acclaimed and on the Maison’s golden hands and its pierres ever-young Alhambra collection. de caractère. The Maison also opened its own The Poetry of Time defines Van Cleef & Arpels’ doors on Place Vendôme with an innovative timepieces. With a truly poetic dimension and programme – L’Ecole Van Cleef & Arpels a story to tell, the Maison’s Extraordinary – for those fascinated to learn about the Dials collection, the astonishing savoir-faire jeweller’s craft. behind the Poetic Complications™, and The year ahead will see new stories told exclusive High Jewellery timepieces set the by Van Cleef & Arpels about poetry, nature Maison apart from other watchmakers and and femininity. jewellers. At the Salon International de la Haute Horlogerie, the Maison presented timepieces inspired by Bals de Légende and other recent High Jewellery collections, as well as Pierre Arpels and Charms Mini from its historic collections and Poetic Wish watches. Stanislas de Quercize Chief Executive

Richemont Annual Report and Accounts 2012 7 Business review

Key results

Sales (€ m)

2012 2 323 2011 1 774 2010 1 353

Operating profit (€ m)

2012 539 2011 379 2010 231

Percentage of Group sales

2012 Specialist Watchmakers 26 %

Richemont’s Maisons

Joint venture

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RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1845 Ferdinand-A.-Lange-Platz 1 Glashütte Germany Chief Executive Wilhelm Schmid Finance Director Beat Bührer www.lange-soehne.com A. Lange & Söhne creates outstanding hand-finished mechanical timepieces with challenging complications that follow a clear and classical design line. Innovative engineering skills and traditional craftsmanship of the highest level guarantee state-of-the-art calibre design, the utmost mechanical precision and meticulously hand-finished movements.

The present generation of A. Lange & Söhne elegant watches includes 43 different calibres, • The 2012 collection has proven each revealing its unmistakable origins the Maison’s quest for perfection in high-precision Lange pocket watches. • Excellence is taken a step further with The latest 2012 collection, presented at the the Lange 1 Tourbillon Perpetual Salon International de la Haute Horlogerie, • The Maison organised the second F.A. has proven the Maison’s quest for perfection. Lange Scholarship & Watchmaking A. Lange & Söhne’s latest masterpiece Excellence Award of haute horlogerie, the Lange 1 Tourbillon Perpetual Calendar, unites two classic complications with the expressive Lange 1 A. Lange & Söhne’s main theme in 2011 style. The ingenious arrangement of the was Pour le Mérite. It reverently alludes to the displays, including the world’s first rotating highest German order of merit for extraordinary peripheral month ring, allows an unequalled accomplishments in the fields of arts and legibility of all calendar information. The sciences. Since 1994, only four exceptional patented stop-seconds mechanism makes it complications of A. Lange & Söhne, which possible to instantly block the balance inside incorporate the unique fusée-and-chain the tourbillon cage at any time so the watch transmission, had the honour of bearing Old family home and manufacturing building, this distinction. The four timepieces and built in 1873 can be set to one-second accuracy. Lange’s watchmaking artistry were displayed For more than a decade, the Maison’s in a touring exhibition around the world. Datograph was considered by many to The Maison continued to sponsor the Dresden be the quintessential chronograph because State Art Collections, including the Mathematical of its technical features and the unparalleled and Physical Salon which hosts early A. Lange harmony of its dial. With a number of & Söhne pocket watches. To promote the enhancements, Lange’s engineers are now watchmakers of tomorrow, the Maison proving that excellence can be taken a step organised the second F. A. Lange Scholarship further with the Datograph Up/Down. & Watchmaking Excellence Award, with Since it premiered in 1994, the Lange 1 eight participating students from international has been the icon of A. Lange & Söhne. watchmaking schools. With altered dimensions and the totally The year ahead includes further extensions new, manually-wound calibre L095.1, of the Maison’s distribution network in China, the Grand Lange 1 exhibits true grandeur. the Middle East and the Americas. The Saxonia watch family was also enriched with a slender newcomer: measuring just 5.9 mm, the Saxonia Thin is the slimmest watch ever crafted by the Maison.

Wilhelm Schmid Chief Executive

Richemont Annual Report and Accounts 2012 9 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1830 50 chemin de la Chênaie Bellevue Geneva Switzerland Chief Executive Alain Zimmermann Finance Director Jean-Baptiste Dembreville www.baume-et-mercier.com Since 1830, Baume & Mercier has been creating watches of the highest quality with classic, timeless aesthetics that leave their mark on time itself. Our timepieces for men and women have emerged over 180 years, unfailingly committed to excellence and with a single purpose: to be indelible embodiments of the most memorable moments of our lives, in line with our claim ‘Life is about moments’.

The impetus given in early 2011, with the unveiling of a new brand identity themed • The themed Seaside living in the Seaside living in the Hamptons, has been Hamptons brand identity was hailed reinforced throughout the past year and as an undisputed success hailed as an undisputed success. • Three new collections were launched in the year, all taking inspiration from Three new collections were launched during historic models the year: Linea and Capeland in spring; and Hampton in fall. All take inspiration from • The Maison’s first boutique was opened historic models. The international response in the Dubai Mall from our partners and in the press to these new collections was excellent. The 2012 Our Seaside living in the Hamptons campaign Salon International de la Haute Horlogerie expresses a relaxed lifestyle vision of the provided the opportunity to reveal new Maison: elegance and seaside art de vivre. developments in these product ranges. It relies on visuals depicting real-life moments For women, Linea, with its rounded shape of family happiness, overflowing with genuine and flowing lines, is now available with feeling; a very emotional illustration of our an automatic movement. All models in this ‘Life is about moments’ slogan. iconic collection come with an interchangeable Just two months after the launch of the brand’s strap system for a fast and easy opening. new chapter in January 2011, the Maison’s Capeland for men, immediately recognisable 1 600 points of sales were equipped to transmit by its sport-chic design with retro accents, this concept worldwide. In October, the first is now available in a larger 44 mm size, new Baume & Mercier boutique opened in the Dubai The Maison’s first boutique, Dubai Mall two-tone dial colours and with a metal bracelet. Mall, reinforcing the ‘Seaside living’ world. The Hampton collection, a watch inspired In the year ahead Baume & Mercier will by the Art Deco style, imposes its rectangular develop its communications tools, particularly elegance with mechanical movements for in the digital sphere, and raise the Maison’s men and quartz movements for women. visibility in Asia.

Alain Zimmermann Chief Executive

10 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1868 Baumgartenstrasse 15 Schaffhausen Switzerland Chief Executive Officer Georges Kern Chief Financial Officer Christian Klever www.iwc.com Since 1868, IWC Schaffhausen has been crafting exquisite timepieces, in which innovative ideas are combined with pure, distinctive designs. With the focus on technology, its products appeal to watch enthusiasts with an interest in engineering and an affinity with discreet luxury.

The new Portofino collection, launched at 2011 Salon International de la Haute • The new Portofino collection has been Horlogerie (‘SIHH’), was very well received very well received around the world around the globe, establishing the collection • The Maison launched its most as the third strong pillar in the IWC portfolio. exclusive and complicated timepiece, After the glamorous gala event ‘A night the Portuguese Sidérale Scafusia in Portofino’, IWC presented the Italian • IWC expanded sponsorship activities, dolce vita, captured by photographer Peter becoming the Official Timekeeper Lindbergh, in a travelling exhibition to of the Volvo Ocean Race 2011-2012 the world. In September, IWC Schaffhausen celebrated IWC Schaffhausen got off to a powerful an absolute highlight: the launch of the start in 2012 with the launch of the new Portuguese Sidérale Scafusia, the Maison’s Pilot’s Watch collection at the SIHH. The IWC headquarters in Schaffhausen most exclusive and complicated timepiece TOP GUN collection established itself as ever. After ten years of intensive research, an independent line within the Pilot’s Watch the Maison’s watchmakers had succeeded family and features the TOP GUN Miramar, in combining solar time with sidereal time a tribute to the airbase in California where the in a single watch. The result is a fascinating legend of the elite pilots was born. Two new universal work of art which comes with models feature many of fine watchmaking’s a wealth of surprising complications and greatest achievements: the Big Pilot’s Watch new technical features, the new patented Perpetual Calendar TOP GUN and the constant-force tourbillon being the most Spitfire Perpetual Calendar Digital Date- conspicuous one. Month. IWC’s exhibition stand at the SIHH The Maison’s exposure was further driven was another outstanding achievement: a highly by strong media and online activities. detailed aircraft carrier, spanning 900 m2 Innovative campaigns have raised the renown and featuring a flight simulator in a full-scale of IWC Schaffhausen in Haute Horlogerie cockpit section of a modern naval jet. The with a particularly strong community in stand created an authentic atmosphere for social media. IWC Schaffhausen has expanded the launch of the new Pilot’s Watches. its sponsoring and partnership activities by In the coming years, IWC will invest taking on the role of Official Timekeeper of in its manufacture and office buildings in the Volvo Ocean Race 2011-2012 and sponsor Schaffhausen. The Maison will also expand its of the 24-hour Speed Record Challenge. boutique network, primarily in Asia, and open The brand is also sponsor of the Abu Dhabi flagship boutiques in New York and Paris. Ocean Racing Team. The Maison continues to support the Laureus Sports for Good Foundation and thus helps children and adolescents who are confronted with the most trying conditions. The Portofino Chronograph Laureus Sport for Good Foundation in characteristic Laureus blue GEORGES KERN is a symbol of hope for a better future. Chief Executive

Richemont Annual Report and Accounts 2012 11 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1833 Rue de la Golisse 8 Le Sentier Switzerland Chief Executive Jérôme Lambert Finance Director Peggy Le Roux www.jaeger-lecoultre.com Since its founding in 1833, Jaeger-LeCoultre has created 1 231 calibres and registered 398 patents, placing the Manufacture at the forefront of invention in fine watchmaking. Its leading position stems from its full integration, with over 180 specialist skills gathered under one roof in the heart of the Vallée de Joux.

• The Maison dedicated its year to the 80th anniversary of the Reverso, its iconic reversible watch • Each Reverso client now has the possibility of a personalised watch, simply by going on Jaeger-LeCoultre’s website • notable recent boutique openings included Hong Kong, Beijing, Mexico and London

Manufacture Jaeger-LeCoultre and headquarters, Jaeger-LeCoultre dedicated its whole year to Jaeger-LeCoultre continued its development Le Sentier the 80th anniversary of the Reverso, its iconic in growth markets, notably in Asia and the reversible watch. The Reverso was created Middle-East, while strengthening its position for British officers who wanted to play polo in its traditional bastions of Europe and the with an elegant yet solid watch, able to resist Americas. The Maison owes this success to the toughness of this sport. A watch that its collections, the extension of its Manufacture, became, over the years, one of the few cult and to the development of a very exclusive fine watchmaking pieces. In order to pay distribution network, including several boutiques tribute to the Reverso, Jaeger-LeCoultre in key cities. Notable recent openings took place launched some exceptional new timepieces, in Hong Kong, Beijing, Mexico and London. including the Grande Reverso Ultra Thin 2012 will further enhance Jaeger-LeCoultre’s Tribute to 1931, inspired by the 1931 Reverso, position of reference in complications, with and a grande complication, the Reverso a year dedicated to technical invention and Répétition Minutes à Rideau. This watch the development of the Maison’s dual-wing shows, for the first time, a sliding curtain collection, the Duomètre. which reveals an animated scene with the superb sound of the minute repeater functions. The Maison used this anniversary to communicate the Reverso’s unique attributes: the possibility for all clients to have their watch personalised at the back of the case by the master engravers and enamellers of JÉRÔME LAMBERT the Manufacture. Each Reverso lover now Chief Executive has the possibility of a personalised watch, simply by going on Jaeger-LeCoultre’s website.

12 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1860 Piazza San Giovanni 16 Palazzo Arcivescovile Florence Italy Chief Executive Angelo Bonati Finance Director Giorgio Ferrazzi www.panerai.com Officine Panerai’s exclusive sport watches are a natural blend of Italian design, Swiss technology and maritime heritage.

In 2011, Officine Panerai used bronze for the first time in the Luminor Submersible 1950 • Demand for the Maison’s new and 3 days automatic. A material long associated classic editions has been strong with the sea, the bronze case slowly changes • Maritime heritage is exemplified by colour through the natural oxidation of its sponsorship of regattas around the world copper content, rendering each piece unique. • Distribution remains extremely selective, Demand for the new piece was very strong. with dedicated boutiques reaching 36 The Maison also enjoyed strong demand for classic editions from the Luminor Marina collection and the new hand-wound Luminor Sponsorship of the Mediterranean and 1950 3 Days 47 mm, featuring the P.3000, North American circuit of regattas reserved a new manufacture movement with a three-day for vintage and classic sailing boats exemplifies power reserve. Panerai’s maritime heritage. In addition to these circuits, Panerai sponsored regattas The Maison’s travelling exhibition ‘Time around Antigua and the Isle of Wight and and Space: a Tribute to Galileo Galilei’, offered Eilean, its own yacht, to charities marking the 400th anniversary of the celestial supporting the chronically sick for restorative observations that changed the world, was sailing days. presented at the Shanghai Sculpture Space. The exhibition featured the Maison’s horological The Maison reinforced its presence in triptych – Lo Scienziato, L’Astronomo and growing markets during the year, aided by the Jupiterium – as well as the astronomer’s a new advertising campaign featuring the original telescope. Maison’s familiar maritime references and its unending commitment to innovation. In Italy, Panerai sponsored the popular Officine Panerai boutique, Florence The distribution of Panerai watches remains ‘O’Clock – time design, design time’ exhibition extremely selective, with the total number of at the Triennale Design Museum in Milan. dedicated Panerai boutiques reaching 36. The exhibition enabled 80 international designers and artists to present their interpretation of time, The main project for next year is the a fundamental theme of our culture. construction of the new manufacture in Neuchâtel, Switzerland. Panerai will also continue to expand its worldwide, dedicated boutique network.

ANGELO BONATI Chief Executive

Richemont Annual Report and Accounts 2012 13 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1874 37, chemin du Champ-des-Filles Geneva Switzerland Chief Executive Philippe Léopold-Metzger Deputy Managing Director Christophe Grenier www.piaget.com Piaget enjoys unrivalled credentials as both a watchmaker and a jeweller. The fully integrated manufactures enable boundless creativity to be shown in each new breath-taking collection.

Breaking two records, Piaget launched the Piaget Altiplano Skeleton Ultra-thin, the • Piaget confirms its position as the world’s thinnest self-winding skeleton model master of ultra-thin movements (5.34 mm) housing the world’s thinnest • The exceptional Dragon and Phoenix self-winding skeleton movement, the 1200S collection was created in honour of calibre at just 2.40 mm. Piaget confirms its the Chinese Year of the Dragon position as the master of ultra-thin movements. • Twelve new dedicated boutiques Piaget has enriched its Black Tie family – were opened during the year across elegant and technical men’s watches – with Asia, Europe and the Middle East a new line: Gouverneur. The Gouverneur line already comprises six models, all housing beautiful Piaget movements. Its subtle design, Piaget’s growing presence in the polo world incorporating round and oval shapes, is is enhanced not only by the sponsorship of the Pilàra Piaget team and the Palm Beach Piaget’s manufacture and headquarters, Geneva the unique work of two Piaget designers – the father and the son – bridging tradition Polo club, but also by collaborating with with modernity. three top-ranked polo players: Marcos Heguy, Nic Roldan and Jeff Hall, all charming Piaget remains inspired by the Limelight Piaget ambassadors. For the fifth time, Piaget Garden Party theme and proves its endless sponsored the ‘Spirit Awards’ ceremony, creativity with new models inviting you for honouring the independent film industry, a walk in the Garden of Eden when evening and for the second time, Piaget sponsored falls. The Piaget Rose, which stands out the ‘Hong Kong International Film Festival’. with its voluptuous shape, is the queen of Those events enhance Piaget’s visibility and this enchanting setting. desirability and create international awareness In honour of the Chinese Year of the Dragon, across the worlds of film and music. Piaget has created an exceptional Dragon Piaget continues to strengthen its network of and Phoenix watch collection encompassing dedicated boutiques with the opening of twelve 24 models, magnificently reinterpreting the boutiques during the year, including two in both imaginary world of Chinese imperial symbols. China and Hong Kong and others across Asia, The launch of this unique collection was Europe and the Middle East. A new interior supported by a major event in Beijing with decoration concept was introduced to the new the presence of the actor Chow Yun Fat. In boutiques in London, Zurich and Abu Dhabi. 2011 the Possession jewellery line’s ‘it-girl’ was actress Jessica Alba, giving Piaget high Piaget is looking forward to participate in the visibility in the press and, thanks to a strong Paris Biennale in 2012, a mythical event where digital campaign, on social networks such as Piaget will present a totally new collection of Facebook, Twitter and YouTube. High Jewellery.

Piaget launched its new ladies campaign featuring Sasha Pivovarova in September. The distinctive campaign featuring the Russian model reveals the Maison’s elegance and exclusivity, creating desire and emotion. PHILIPPE LÉOPOLD-METZGER Chief Executive

14 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 2007 1 Chemin de la Papeterie Versoix Geneva Switzerland Chairman Callum Barton Finance Director Stéphane Boukertaba www.ralphlaurenwatches.com www.ralphlaurenjewelry.com “To design something legendary that has a sense of timelessness; that is what I aspire to do.” Ralph Lauren

Ralph Lauren’s collection of fine timepieces and jewellery is about designs that transcend the brand’s signature sensibilities of luxury, authenticity and timelessness.

At the Salon International de la Haute Horlogerie in January 2009, Ralph Lauren • Ralph Lauren’s watches and jewellery Watches launched three debut collections are of the finest quality, craftsmanship, of iconic timepieces: the Ralph Lauren materials and design Stirrup Collection, the Ralph Lauren • Watches are available at select brand Slim Classique Collection and the Ralph boutiques and top independent retailers Lauren Sporting Collection. Respecting in major metropolitan cities tradition and watchmaking heritage, Ralph • Dedicated Salons were opened at Lauren watches are of the finest quality and boutiques on Avenue Montaigne, Paris craftsmanship, combining extraordinary design, and the Peninsula Hotel, Hong Kong noble materials, and the use of Richemont manufacture movements. Ralph Lauren watches are available at The following year, Ralph Lauren jewellery was select brand boutiques and top independent introduced exclusively at the brand’s women’s retailers worldwide, in major metropolitan flagship store in New York. Featuring brilliance, cities including New York, Beverly Hills, movement and the iconic glamour from Paris, London, Milan, Tokyo and Shanghai. the world of Ralph Lauren, the fine jewellery In 2011, the company opened dedicated collections are handcrafted with the most Ralph Lauren Watch & Jewelry Salon at the Watch & Jewellery Salons at the Ralph Lauren 888 Madison Avenue store in New York exceptional materials and intricate finishing boutiques on Avenue Montaigne, Paris techniques, capturing the designer’s distinguished and in the Peninsula Hotel, Hong Kong. tradition of masterful craftsmanship. Ralph Lauren will continue to expand its Today, Ralph Lauren Watch & Jewelry Co. distribution, including the opening of a is a recognised participant in the market, Watch Salon in Hong Kong at the prestigious well-received by the industry with a marked Prince’s Building. appreciation for the company’s committed, For 2012, the company continues to build on serious approach and a true understanding its strong foundation with fresh interpretations of the unique partnership between Richemont’s that feature new finishes, new bracelet and high-end expertise and Ralph Lauren’s straps styles, and a new size. These novelties distinctive, timeless design. demonstrate Ralph Lauren’s enduring passion for fine craftsmanship and pay tribute to the designer’s iconic art deco, equestrian and automotive inspirations. The result is a comprehensive and unique offering of watches that combine Ralph Lauren’s hallmark sensibilities of luxury and timelessness, with the exceptional tradition of Swiss watchmaking.

Ralph Lauren Watch & Jewelry Co. is a joint venture between Richemont and Ralph Lauren Corporation.

Richemont Annual Report and Accounts 2012 15 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1995 2 rue André de Garrini Meyrin Geneva Switzerland Chief Executive Officer Jean-Marc Pontroué Finance Director Patrick Addor www.rogerdubuis.com Roger Dubuis has been at the forefront of contemporary Haute Horlogerie since 1995. Its audacious creations, firmly anchored in the 21st century, bear the mark of all the savoir-faire and expertise of the finest watchmaking mechanisms combined with powerful and daring designs.

In 2011 Roger Dubuis successfully entered a new era and proved its strong vitality in • The only watchmaker worldwide to terms of new collections, the development of offer all its timepieces under the stringent innovative movements and the implementation requirements of the Poinçon de Genève of state-of-the-art communication strategies. • The newly introduced La Monégasque The fully integrated Geneva Maison was was celebrated with exclusive events again the only watchmaker worldwide to • Continued expansion with new boutiques offer all its precious timepieces under the in Singapore, Abu Dhabi and a flagship stringent requirements of the Poinçon de at Heritage 1881 in Hong Kong Genève hallmark. After the Salon International de la Haute At the SIHH 2012, Pulsion and Velvet, the Horlogerie in 2011, the newly introduced two newcomers joined the existing collections, La Monégasque was celebrated worldwide La Monegasque and Excalibur, to complete with exclusive events where people discovered the four worlds of Roger Dubuis. Pulsion, the new ‘Incredible World of Roger Dubuis’. the outdoor line, stands for an innovative The spirit of elegance and gambling transported proposal in terms of materials and construction guests to the atmosphere of Monaco. As a and appeals to men who want to stand out flagship event, Roger Dubuis held an exclusive Roger Dubuis’ manufacture and from the crowd. For the ladies, the Geneva headquarters, Geneva launch party in the Rock area of Monte Carlo, Maison has dedicated an entire universe where international guests embraced the chic to elegance, glamour and jewellery with the and sophisticated universe of the principality. launch of the feminine Velvet collection. The To support its growth, Roger Dubuis gave Excalibur has been enriched by an automatic a new dimension to its communication strategy. line, powered by the new RD 620 movement, By adopting a new corporate identity including that remains faithful to the features that have new logo, new advertising campaign, new forged the reputation of this iconic collection. online platforms and new boutique concept, The Maison continued to expand its Roger Dubuis showed its capacity in geographical coverage during the year by conceptual creativity. opening boutiques in Singapore, Abu Dhabi Roger Dubuis was pleased to announce the and a flagship at Heritage 1881 in Hong Kong, return of the master watchmaker himself, all designed to complement the new Roger Mr Roger Dubuis, to the Maison that bears Dubuis retail world. Additional boutiques his name. Having founded the firm in 1995, will be opened in China and the Middle East Mr Dubuis returned to the Geneva manufacture during the coming year. to share his wealth of experience.

Richemont has a controlling interest in Manufacture Jean-Marc Pontroué Roger Dubuis and owns all of its manufacturing facilities. Chief Executive

16 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1755 7 Quai de l’Ile Geneva Switzerland Chief Executive Juan-Carlos Torres Finance Director Robert Colautti www.vacheron-constantin.com Since its foundation in 1755, Vacheron Constantin has maintained an exceptional and unique continuous history thanks to the combination of talents of the finest master craftsmen in Geneva. Representing the very spirit of Excellence Horlogère, the Maison continues to design, develop and produce an array of outstanding timepieces that remain faithful to its three fundamentals: fully mastered technique, inspired aesthetics and superlative finishing.

The Patrimony collection remains the most important in the Maison’s portfolio • The Patrimony collection is increasingly and is increasingly sought after by watch sought after by watch connoisseurs connoisseurs. The Atelier Cabinotiers, • 24 000 people visited the first large the Maison’s special order service, is also exhibition of the Maison’s Heritage in demand among collectors of highly Collection in Singapore complicated pieces. • The Maison enjoys worldwide success, Vacheron Constantin’s reputation as a especially in China, enjoying a leading master craftsman was further strengthened reputation in Haute Horlogerie through its partnership with the National Institute of Artistic Crafts of France. Related The Maison enjoyed worldwide success, events enabled the Maison to demonstrate most notably in the Asia-Pacific region and one of its core values: the need to pass on especially in China, where it enjoys a leading know-how. Remaining firmly in the forefront reputation in Haute Horlogerie. The Maison’s of watchmaker training, the company runs 27 dedicated boutiques, including its first a certified training centre, annually mentoring opening in the United States, are complemented some 16 apprentices – a commitment that has by a network of smaller distribution partnerships. been regularly increased. Vacheron Constantin building, Geneva Two substantial manufacturing projects have The Maison is positioned as a patron of been launched: a new plant for the production arts and culture by supporting several of components in the Vallée de Joux and the institutions around the world. extension of the Geneva manufacture. The first large exhibition of the Maison’s Thanks to its 257-year heritage, the success of Heritage Collection, co-curated with the its collections and its undisputable reputation National Museum of Singapore, attracted as a master craftsman, all three forged in some 24 000 visitors, and established the accordance with François Constantin’s motto Maison as a universal historical reference. ‘do better if possible, and that is always This year marked the 125th anniversary of possible’, Vacheron Constantin looks to the Poinçon de Genève hallmark. Vacheron the future with confidence. Constantin is the longest established submitting company and produces the largest number of watches certified by this prestigious, independent quality seal.

JUAN-CARLOS TORRES Chief Executive

Richemont Annual Report and Accounts 2012 17 Business review

Key results

Sales (€ m)

2012 723 2011 672 2010 551

Operating profit (€ m)

2012 119 2011 109 2010 79

Percentage of Group sales

2012 Montblanc Maison 8 %

18 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1906 Hellgrundweg 100 Hamburg Germany Chief Executive Lutz Bethge Finance Director Roland Hoekzema www.montblanc.com Montblanc, a Maison embodying the values of European master craftsmanship, has successfully transmitted its values and know-how to watches, jewellery and fine leather goods. Embracing tradition and timeless elegance as well as innovation and creativity, the Maison signifies a successful and cultured lifestyle.

The year was characterised by a strong development of the watch category, reinforcing • Celebration of the 190th anniversary Montblanc’s reputation as a Luxury Maison. of the Chronograph by launching the In our writing instrument business, our main Nicholas Rieussec anniversary edition focus was on the further refinement of our • Introduction of a new manufacture distribution partnerships to ensure a high movement – LL100 in the quality experience at all of our points of sale. Timewalker range As a consequence, the number of points of • The boutique network was enriched sale was reduced. by the first concept store in Beijing Highlight of the year was our celebration of the 190th anniversary of the invention of the The Maison’s boutique network was Chronograph by Nicolas Rieussec. A special enriched by the first concept store in Sanlitun, anniversary edition of the Montblanc Nicolas Beijing. This boutique offers an interactive Rieussec collection was launched and, in experience and creates a platform for a new cooperation with the Musée International type of communication. Every three months, Horlogerie in La Chaux-de-Fonds, the Maison the boutique will highlight a different facet supported a Chronograph Exhibition. The of Montblanc’s history, its values and its introduction of a new manufacture movement, excellence in its métiers. This approach seeks the LL100 for our Timewalker collection to fulfil the demand in the Asian market for added to the Maison’s watchmaking reputation. a more intimate relationship with the Maison. A further highlight was the creation of In parallel with the refinement of our a Princess Grace de Monaco collection, distribution network, the Maison successfully which includes writing instruments, watches launched its e-commerce channel in the US. The Sanlitun concept store, Beijing and jewellery. The collection pays tribute to In 2012, the Maison will continue to the grace and elegance of an extraordinary strengthen its position in watchmaking, woman who dedicated an important part which is seen as the largest growth of her life to supporting the arts. With a opportunity for the brand. In jewellery, share of the proceeds from this collection, we will further develop our product offer for Montblanc has supported the Princess Grace both women and men. Continued investments Foundation as part of its wider commitment in the boutique network, in particular in Asia to arts and culture. and other developing markets, will reinforce In writing instruments, the Maison celebrated the Maison’s image, with an emphasis on the 20th anniversary of the Montblanc upgrading the current network. de la Culture arts patronage awards with award ceremonies in twelve major cities. These ceremonies showcased the Maison’s excellence in creative and precious editions, including the new Gaius Maecenas edition. Accompanied by travelling exhibitions comprising the Lutz Bethge complete retrospective of all patron of the Chief Executive arts limited editions, the Maison displayed its enduring image.

Richemont Annual Report and Accounts 2012 19 Business review

Key results

Sales (€ m)

2012 1 231 2011 967 2010 584

Operating loss (€ m)

2012 (35) 2011 (34) 2010 (36)

Percentage of Group sales

2012 Other Businesses 14 %

Richemont’s Maisons

20 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1893 Bourdon House 2 Davies Street London England Chief Executive Christopher M. Colfer Finance Director Mike Woodcock www.dunhill.com Standing for elegance, intelligence, culture, creativity and travel, Alfred Dunhill is the ultimate male luxury destination. A global luxury brand, the Maison has set new standards in retail with its ‘Homes’ in London, Shanghai, Hong Kong and Tokyo.

The Maison’s exceptional heritage continues to inspire the creation of new essentials for • The Homes of Alfred Dunhill men. The finest in menswear requires the provide the perfect setting for special finest materials: Camdeboo mohair; Sea Island customer events cotton; Fox Brothers’ flannel. Luxurious • ‘The Voice’ advertising campaign accessories, such as the new Bourdon Leather went from strength to strength range, equally demand the very best leathers • The year ahead will continue to and craftsmanship. see investment and improvement in As well as offering bespoke tailoring and the Maison’s network of more than exclusive accessories, the Homes of Alfred 220 boutiques Dunhill provide the perfect setting for special customer events, dining, relaxation, Reflecting a commitment to brilliance, conversation and service. One of the year’s Alfred Dunhill continued its sponsorship highlights was a special performance by of the British GQ Men of the Year Awards. violin virtuoso Charlie Siem and Chinese Separately, the Alfred Dunhill Links opera singer Zhang Jun hosted in the Championship 2011 maintained its position Shanghai Home. as the world’s most sought-after invitation The London Home of Alfred Dunhill, in world golf. Bourdon House Alfred Dunhill challenges the notion of luxury and what is expected of an international The year ahead will see investments to luxury brand. Through the innovative use further improve service in Alfred Dunhill’s of new media and atypical events, it continues network of more than 220 boutiques, as to enjoy an unequalled reputation in men’s well as philanthropic events. luxury. The first to use augmented reality as a communications platform, Alfred Dunhill now uses social media to convey its values to a worldwide audience. ‘The Voice’ advertising campaign, which celebrates the achievements of brilliant men, went from strength to strength. This year the CHRISTOPHER M. COLFER campaign featured the explorer Sir Ranulph Chief Executive Fiennes, theatre director Michael Grandage and principal ballet dancer Rupert Pennefather. Ahead of the London-hosted Olympics, the campaign celebrates outstanding British athletes from the worlds of rowing, sailing and gymnastics.

Richemont Annual Report and Accounts 2012 21 Business review

One of fashion’s greatest couturiers, Mr Alaïa continues to create exceptional pieces recognised worldwide for their exquisite design and beauty.

It has been a tremendous year for the Maison – from the extraordinary July couture show • The eagerly anticipated show in July to the December opening of an exhibition at the was Alaia’s first couture presentation Groninger Museum in the Netherlands – Alaïa in eight years is at the forefront of legendary design houses. • The Intemporels collection maintains its strong success with customers across The eagerly anticipated July couture show, the world presented in addition to Mr Alaïa’s regular collections, was his first couture presentation • China is also a key area of growth in eight years. In addition to the exceptional and more dedicated spaces will be pieces created for the collection, the extensive opened in the coming year press attention generated was unprecedented and ensured that the show made a notable Distribution is being developed with wholesale impact on the image of the Maison. To that partners around the world, with a focus on end, sales for the collections during the year quality rather than quantity. Europe remains reached record highs. strong with exceptional performances from Opened in December 2011 and on display the Maison’s UK partners. Recent renovations until May 2012, the ‘Azzedine Alaïa in the in other European locations have bolstered Couture show July 2011. 7 rue de Moussy, Paris 21st Century’ exhibition at the Groninger sales, supporting the strong trend. In the US, Museum presented Mr Alaïa’s extraordinary with nearly half of the Maison’s corners, pieces of the past decade. Following on from further expansion has come from partnerships the 1998 retrospective at the Groninger, this with department stores. China is also a key highly curated collection was well received area of growth and more dedicated spaces by press and visitors alike. will be opened in the coming year. The Intemporels collection of Alaïa signature To support the continuing rapid growth of pieces maintains its strong success with the Maison, further investments in information customers across the world, supported by technology and logistics are being made to the creative strength of the main collections provide the Maison with a solid infrastructure. presented in March and October. Knitwear, In the year ahead the Maison will look at fabric, and leather ready-to-wear are a number of exciting initiatives, including complemented by a growing collection the opening of a Paris flagship building in of footwear, handbags and accessories the city’s ‘Golden Triangle’. for both collections.

22 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1952 5-7 Avenue Percier Paris France Chief Executive Geoffroy de La Bourdonnaye Chief Operating Officer Markus F.L. Probst www.chloe.com Chloé is the most naturally feminine fashion house for women with a free-spirited attitude. The Maison was founded 60 years ago by Gaby Aghion who rejected the stiff formality of the 50s and created soft, body-conscious clothes from fine fabrics, calling them ‘luxury prêt-à-porter’. Today, Chloé continues to epitomise values of femininity, modernity, effortless grace and a free spirit.

Special events during the year included the Spring/Summer 2012 show, the first collection • The Spring/Summer 2012 show from Clare Waight Keller. The event drew drew wide attention and the collection wide attention and the new designer’s met with critical acclaim collection met with critical acclaim. • Chloé’s social media presence grew rapidly to over 500 000 fans on For her second runway collection, presented in Facebook March, Clare Waight Keller balanced outdoorsy British style with French polish and elegance. • The Maison has established a new This Fall/Winter collection received strong organisation to better fuel growth and reviews from key international fashion the quality of its collections writers and blogs, applauding her success in recapturing Chloé’s charm and praising the The bag launches for Jade and Angie in direction in which she is taking the Maison. October further enhanced the Maison’s 44 Avenue Montaigne, Paris Both Chloé and See by Chloé are benefiting reputation in leather goods. The continuing from new creative direction during the year. success of Chloé fragrances contributes to Chloe’s social media presence grew rapidly to the Maison’s worldwide exposure. Eau de over 500 000 fans on Facebook and See by Chloé, a fresh and summery composition, Chloé’s first digital fashion show was presented was launched in February. in February. Behind the scenes, the Maison has established The Maison’s growing presence in China a new organisation to better fuel the growth followed from its participation at the Shanghai and the quality of its collections. Leadership Fashion Show in February 2011 and the is focused on developing a retail-oriented opening of new boutiques in Shanghai and culture within the Maison and enhancing Beijing during the year. In Paris, the preparation Chloé’s digital presence in social networks of a new flagship boutique on rue St. Honoré and new media. has begun and the doors will be opening The year ahead will see new collections, later in 2012. The combination of boutique further boutique investments and celebrations investments in both fast-growing markets of Chloé’s heritage. and the French home market reinforces the Maison’s international appeal and stature, driving demand for ready-to-wear collections and accessories.

Geoffroy de La Bourdonnaye Chief Executive

Richemont Annual Report and Accounts 2012 23 Business review

Lancel has been the creator and retailer of timeless, innovative and colourful maroquinerie de luxe since 1876.

In recent years, the Maison has redefined its icons and codes, established diversified sourcing • The Maison’s multi-faceted strategy and implemented a dynamic marketing strategy. has resulted in strong growth and the Combined, this multi-faceted strategy has cultivation of a loyal clientele resulted in strong growth and the cultivation • This year saw the successful opening of a loyal clientele. of major international flagships in Moscow and Shanghai This year saw the successful opening of major international flagships in Moscow and Shanghai • The deployment of new information as the company focuses on its worldwide technology has been critical in expansion. Reinforcing its global reputation, supporting its growth potential Lancel undertook a complete renovation of its Champs-Elysées flagship, one of the most The year saw a number of steps to enhance sought-after retail locations in the world. and differentiate the customer journey. The Lancel achieved great success with this year’s deployment of new information technology launch of the iconic Daligramme collection. systems has been critical in stabilising the Drawn from the Maison’s archives, the company and supporting its growth potential. company worked in collaboration with the Lancel’s boutique on the Champs Élysées, Paris In the year ahead, Lancel will further invest Dali Foundation to share this strong story. in its boutiques and develop its collections. The fruit of this collaboration is a unique The Maison expects to attract considerable and sought-after collection with a prestigious attention when it inaugurates a boutique positioning, representing Lancel’s introduction within the Louvre and, in response to an to the monogram market. In order to share ever-increasing demand, expands its precious the deep, rich history of the line and its skins programme in its global flagship boutiques. concept, the Maison applied a 360° marketing strategy creating strong visibility and brand recognition. Alongside the continued success of the Maison’s main collections – Premier Flirt, Adjani and Brigitte Bardot – the successful launch of the Angèle collection, in honour of the Maison’s founder, has generated strong demand.

24 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 2000 1 The Village Offices Westfield London England Founder and Chairman Natalie Massenet Chief Executive Mark Sebba Finance Director Richard Mills The NET-A-PORTER GROUP, founded in 2000 with the launch www.net-a-porter.com of NET-A-PORTER.COM, the world’s premier women’s luxury www.mrporter.com www.theoutnet.com fashion online retailer, is now a group of e-commerce brands including THEOUTNET.COM, the most fashionable fashion outlet, and MRPORTER.COM, the men’s style destination.

With over 2 000 employees operating from three continents, the NET-A-PORTER • The group’s brands currently reach GROUP of brands currently reaches over over 6.5 million unique users globally 7 million unique users in the global luxury • MR PORTER has established itself fashion space, serves over 500 000 active as the online style destination for men shoppers and is gaining on average over • THEOUTNET.CN was launched in 30 000 new customers worldwide each month. China, the start of a phased development Acclaimed editorially, featuring leading plan in Asia for the group designers, iconic packaging, and unrivalled service, NET-A-PORTER enables visitors to Virtual gift cards were launched and shop over 350 designer collections 365 days Gift Finder is promoted through email and a year, and delivers to 170 countries with The Journal. The Inheriting Style campaign same day delivery in London and Manhattan. has run globally across key media partners The award-winning website continuously both offline and online. seeks original ways to improve user experience through new technology including ground- THE OUTNET, the most fashionable breaking interactive events, shopping via fashion outlet, is the first brand in the Net-a-Porter headquarters, London all mobile devices and a much-lauded weekly group with a translated site. In March 2012, magazine app for the iPad now downloaded THEOUTNET.CN was launched in China by over 500 000 users. The Window Shop marking the start of a phased development concept, an augmented reality shopping plan in Asia for the NET-A-PORTER application, first unveiled for Vogue’s Fashion’s GROUP. Key events for the year included Night Out in September in London and New a second Birthday Promotion and Dress York, was further developed for the exclusive Up with THE OUTNET, a unique blogger launch of new line KARL by Karl Lagerfeld event creating user-generated content. THE in January 2012. Brand collaborations are OUTNET’s new homepage has increased a vital part of the NET-A-PORTER business. channels to stock and editorial content with Further initiatives included the launch of improved cumulative click through. NET-A-PORTER Live, an exciting interactive Constantly seeking to improve global shopping experience that offers a global customer experience and business efficiencies snapshot of real-time consumer activity. across the three brands, the group upgraded Following its launch in February 2011, operations through state-of-the-art, automated MR PORTER has established itself as the distribution. A high density storage and online style destination for men. The site retrieval system was successfully implemented is active across seven social media platforms in London and a further system is in progress including Facebook, Twitter, YouTube and in the New Jersey distribution centre. Tumblr and utilises all to create exclusive content. The contents of the magazine section of the site, The Journal, are reproduced in a bi-monthly newspaper: The MR PORTER Post. NATALIE MASSENET FOUNDER AND CHAIRMAN

Richemont Annual Report and Accounts 2012 25 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1814 Audley House 57-58 South Audley Street London England Chairman Nigel Beaumont Finance Director Matthew Clarke www.purdey.com James Purdey & Sons, one of the world’s oldest sporting brands, is renowned for making the finest shotguns and rifles. The precision craftsmanship and exquisite finish of a Purdey gun appeals as no other to sports enthusiasts the world over.

Sales of guns and rifles remained stable, and the business saw a significant increase • The business saw a significant increase in the number of new customers. In addition, in the number of new customers Purdey designs and creates exclusive product • The Purdey Awards give greater for the shooting world, much of it hand-crafted awareness and recognition to the synergy in the United Kingdom. Clothing and between shooting and conservation accessories are designed to combine the best • Purdey continues to maintain its leading technical materials with beautiful fabrics and position in gunmaking craftsmanship handcrafted details suitable for the shooting weekends both on and off the shoot. The trio will take 18 months to make and The Purdey Awards are well established each gun represents a significant milestone as a driving force in promoting greater in the company’s 200-year history. The models awareness of the synergy between shooting chosen are: a .470 double express rifle, first and conservation and give recognition to produced in 1865; a 12-bore side by side the UK’s best game conservation projects. hammerless ejector game gun, the classic The most recent Purdey Gold Award was Purdey shotgun launched in 1880; and a jointly awarded to the owners of a once 20-bore over and under built in 21st Century derelict industrial site in Essex and a wild Audley House – the home of James Purdey & Sons Damasteel. All typify Purdey’s innovative since 1882 grey partridge restoration project within designs and world-class gunmaking skills, a family farm shoot in Bedfordshire. honed over two centuries. The environmental benefits arising from game conservation work continue to reach Each gun in the Purdey Bicentenary Trio a wider audience both within and outside will have the engraving characteristic of the shooting world. the era in which it was created. All will bear the bicentenary motif and each gun will be With the 200-year anniversary only two given a special serial number. The Purdey years away, plans are underway to celebrate Bicentenary Trio will be presented with a the founding of the company. In anticipation, commemorative display case and a travel case Purdey have begun making a unique trio, based on the original made in the early 1930s two shotguns and one double rifle, to celebrate for King George VI. Profits from the trio sale their long tradition of craftsmanship. will be donated to charitable causes. To maintain its leading position, Purdey will continue to invest in its core strength of gunmaking craftsmanship and in its manufacturing facility in West London.

NIGEL beaumont Chairman

26 Richemont Annual Report and Accounts 2012 Business review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Established 1994 1 Duddell Street Hong Kong People’s Republic of China Executive Chairman Raphael Le Masne de Chermont Finance Director Annie Paray www.shanghaitang.com Shanghai Tang, the pioneering Chinese luxury brand, excites with creative, contemporary Chinese chic.

As the global ambassador of contemporary Chinese chic, Shanghai Tang continues • The Maison offers an alluring fusion to bring exciting new experiences with of contemporary design and authentic its distinctive style and vibrant creativity. Chinese characteristics With a global network of 40 boutiques, • Shanghai Tang has worked with the Maison offers a unique, multi-sensory some of China’s most creative talents shopping experience: an alluring fusion • Digital development included a of contemporary design and authentic revamped website and an enhanced Chinese characteristics. e-commerce interface The Maison has worked with some of China’s most creative talents. It appointed Shanghai Tang continues to evolve its retail Chinese celebrities Lin Chiling and Hu Bing offer with streamlined, modern boutique as brand ambassadors for campaigns shot designs and more versatile lifestyle products, The Shanghai Tang Mansion, Hong Kong by renowned Chinese photographer Chen as seen in the new boutiques in Ngee Ann Man. Other creative collaborations included City, Singapore and Hong Kong’s Times the Shanghai Tang for Nespresso Dragon Square. It has also strengthened its distribution collection and the Shanghai Tang for in China, a strategic priority market, with Moleskine Feng Shui Diary for the Year expansion to the second tier cities of Kunming, of the Dragon. Xiamen and Shenyang. Developments on Faced with the closure of its Pedder Building the digital front included a revamped website, flagship in Central, Hong Kong the Maison an enhanced e-commerce interface and active took a creative approach. It became the social media engagements. ‘Nomad of Central’, with a series of innovative In the year ahead, the Maison will enhance pop-up boutiques, including the Shanghai its customers’ shopping experience with a Tang Mongolian Village featuring authentic new loyalty programme. It will secure its Mongolian ger tents perched upon the rooftop expansion plan in Asia through the opening of Central Pier 4, Hong Kong. of its largest worldwide flagship in Central, Hong Kong – the Shanghai Tang Mansion at 1 Duddell Street.

Raphael Le Masne de Chermont Executive chairman

Richemont Annual Report and Accounts 2012 27 Business review

RICHARD LEPEU, Deputy Chief Executive OFFICER

Gary Saage, Chief Financial Officer

in € millions March 2012 March 2011 % change Sales 8 867 6 892 +29 % Cost of sales (3 216) (2 498) Gross profit 5 651 4 394 +29 % Net operating expenses (3 611) (3 039) +19 % Operating profit 2 040 1 355 +51 % Net financial costs (235) (181) +29 % Share of post-tax results of associated undertakings (1) 101 Profit before taxation 1 804 1 275 +42 % Taxation (264) (196) +35 % Profit for the year 1 540 1 079 +43 %

Attributable to owners of the parent company 1 544 1 090 Attributable to non-controlling interests (4) (11) Profit for the year 1 540 1 079 +43 %

Earnings per share – diluted basis € 2.756 € 1.925 +43 %

Sales retail activities in the overall sales mix. The stronger Swiss franc Sales for the year increased by 29 % at actual exchange rates is of particular importance to the cost of sales as the majority of and by 30 % at constant exchange rates. The growth in sales the Group’s manufacturing facilities are located in Switzerland. reflected the continuing demand for established product lines, Operating profit the successful introduction of new products and the impact of Operating profit increased by 51 %, reflecting the significant boutique openings. The Asia-Pacific region saw the highest level increase in gross profit and continuing cost discipline. This is of demand and, following several years of very strong growth, evidenced by the limited year-on-year increase in net operating sales in that region now represent 42 % of Group sales. Further expenses of 19 %, which was well below the percentage details of sales by region, distribution channel and business growth in sales. area are given in the Review of Operations on pages 30 to 33. Selling and distribution expenses were 19 % higher, reflecting Gross profit sales growth in general and the opening of new boutiques by Gross profit also increased by 29 %. The gross margin percentage the Maisons. Communication expenses increased by 23 %, was in line with the prior year at 63.7 % of sales. The negative representing 10 % of sales. Administration costs rose by 14 % impact on the gross margin percentage of adverse exchange rate overall, including the impact of structural developments to support movements, in particular the strengthening of the Swiss franc, and Richemont’s Fashion and Accessories businesses, Net-a-Porter, higher precious material and input costs, were offset by a number and information technology projects across the Group. of specific factors. These included foreign exchange hedging gains of € 108 million (2011: € 13 million) and the impact of price As a consequence, the operating margin increased by 330 basis increases, as well as the growing importance of the Group’s own points to 23.0 % in the year under review.

28 Richemont Annual Report and Accounts 2012 Business review: Financial review

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Profit for the year Inventories at the year-end amounted to € 3 666 million. Profit for the year increased by 43 % to € 1 540 million. This figure represents 15.8 months of gross inventories and The increase included the following significant items: compares with 16.5 months at March 2011. The reduction in the rate of stock turn reflects favourable trading conditions. • within net finance costs, € 169 million related to non-cash, In absolute terms, the increase in the value of inventories results mark-to-market currency losses on euro-denominated liquid from the strengthening of the Swiss franc, the expansion of bond funds held by a Swiss franc entity. Upon translation the boutique network and the necessity to rebuild inventories. back into euros, there was no effect on the Group’s overall equity position; and At 31 March 2012, the Group’s net cash position amounted to € 3 184 million, an increase of € 595 million during the year. • the non-recurrence of a € 102 million non-cash accounting The Group’s net cash position includes short-term liquid bond gain recorded in the comparative year within the Group’s funds as well as cash, cash equivalents and all borrowings. share of the post-tax results of associated companies. The Liquid bond funds and cash balances were primarily denominated gain related to the revaluation of the Group’s former interest in euros and Swiss francs, whereas borrowings to finance local in Net-a-Porter in April 2010 when Richemont acquired operating assets are denominated in the currencies of the countries control of that business. concerned. Total borrowings, including bank borrowings and The effective taxation rate was 14.6 %. The decrease in the short-term loans, amounted to € 88 million. rate compared to the prior year was primarily due to timing Richemont’s financial structure remains very strong, with differences associated with deferred tax assets relating to shareholders’ equity representing 73 % of total equity and liabilities. inventory. Excluding these timing differences, the effective taxation rate was consistent with the prior year. Proposed dividend The Board has proposed an ordinary cash dividend of CHF 0.55 Earnings per share increased by 43 % to € 2.756 on a diluted per share, an increase of CHF 0.10 per share compared to last year. basis. To comply with the South African practice of providing headline earnings per share (‘HEPS’) data, the relevant figure The dividend will be paid as follows: for headline earnings for the year ended 31 March 2012 would Gross dividend Swiss withholding net payable be € 1 553 million (2011: € 1 002 million). Basic HEPS for the year per share tax @ 35 % per share was € 2.832 (2011: € 1.818). Diluted HEPS for the year was Ordinary dividend CHF 0.5500 CHF 0.1925 CHF 0.3575 € 2.772 (2011: € 1.770). Further details regarding earnings per share and HEPS, including an itemised reconciliation, may be The dividend will be payable following the Annual General found in note 30 of the Group’s consolidated financial statements. Meeting, which is scheduled to take place in Geneva on Wednesday 5 September 2012. Cash flow Cash flow generated from operations was € 1 789 million, The last day to trade Richemont ‘A’ shares and Richemont € 93 million above the prior year. The additional cash generated South African Depository Receipts cum-dividend will be from operating profit was partly offset by working capital Friday 7 September 2012. Richemont ‘A’ shares and South increases, in particular inventories. The increase in inventories African Depository Receipts will trade ex-dividend from was broadly in line with the increase in sales. Monday 10 September 2012. The net acquisition of tangible fixed assets amounted to The dividend on the Compagnie Financière Richemont ‘A’ shares € 398 million, reflecting selected investments in the Group’s will be paid on Thursday 13 September 2012. The dividend in worldwide network of boutiques as well as jewellery and watch respect of the ‘A’ shares is payable in Swiss francs. manufacturing facilities, primarily in Switzerland. The dividend in respect of Richemont South African Depository The 2011 dividend, at CHF 0.45 per share, was paid to shareholders Receipts will be payable on Friday 21 September 2012. The net of Swiss withholding tax in September. The cash outflow South African Depository Receipt dividend is payable in rand in the period amounted to € 204 million. to residents of the South African Common Monetary Area (‘CMA’) but may, dependent upon residence status, be payable During the year, the Group acquired some 8 million ‘A’ shares in Swiss francs to non-CMA residents. Further details regarding to hedge executive share options. The cost of these purchases was the dividend payable to South African Depository Receipt partly offset by proceeds from the exercise of share options by holders was made in a separate announcement on SENS, the executives and other activities linked to the hedging programme, Johannesburg stock exchange news service, on 16 May 2012. leading to a net cash outflow of € 179 million.

Financial structure and balance sheet Tangible and intangible assets increased by € 302 million during the year. The increase largely reflects the expansion of the Maisons’ boutique networks, particularly in the Asia-Pacific region, and investments in their European manufacturing facilities.

Richemont Annual Report and Accounts 2012 29 Business review: Financial review

Sales by region

9 % Europe 3 097 million 14 % 35 % Asia-Pacific 3 684 million Americas 1 253 million Japan 833 million

42 %

Movement at Constant Actual exchange exchange in € millions 31 March 2012 31 March 2011 rates* rates Europe 3 097 2 588 +20 % +20 % Asia-Pacific 3 684 2 569 +46 % +43 % Americas 1 253 998 +30 % +26 % Japan 833 737 +9 % +13 % 8 867 6 892 +30 % +29 %

* note: movements at constant exchange rates are calculated translating underlying sales in local currencies into euros in both the current year and the comparative year at the average exchange rates applicable for the financial year ended 31 March 2011.

Europe Americas Solid double-digit organic growth was registered across the The Americas region reported robust double-digit growth region. Sales in the region were boosted by the growing number reflecting the growing demand for jewellery and watches as of travellers from other parts of the world and Net-a-Porter’s well as Net-a-Porter’s performance. performance. The Middle East and Africa, which accounted for Japan 16 % of sales in the region, reported strong double-digit growth. Sales in Japan grew, notwithstanding the continuing challenges Asia-Pacific the country faces following the dramatic events of March 2011. Now representing 42 % of Group sales, the Asia-Pacific region reported another year of sustained broad-based growth, particularly in Hong Kong and mainland China. The Group’s selective expansion of its retail network in recent years contributed to the strong year-on-year growth.

30 Richemont Annual Report and Accounts 2012 Business review: Financial review

Retail 4 656 million Wholesale 4 211 million 47 % 53 %

Movement at Constant Actual exchange exchange in € millions 31 March 2012 31 March 2011 rates* rates Retail 4 656 3 469 +36 % +34 % Wholesale 4 211 3 423 +24 % +23 % 8 867 6 892 +30 % +29 %

Retail Wholesale Retail sales comprise sales made through the Group’s directly The Group’s wholesale business, including sales to franchise operated boutiques and Net-a-Porter. Together, retail sales partners, reported strong growth above last year’s level. This accounted for 53 % of Group sales during the year compared growth reflected the performance of our trade partners following with 50 % in the prior year. The growing proportion of retail sales the optimisation of the Maisons’ respective partner networks. reflects the above-average performance in most directly operated The Maisons carried out planned reductions in the number of boutiques, the impact of new boutiques and Net-a-Porter. points of sale in Western Europe and North America. Boutique openings during the year were primarily in high-growth markets, such as mainland China. The worldwide network of directly operated boutiques amounted to 948 at the end of March compared to 876 one year earlier.

Richemont Annual Report and Accounts 2012 31 Business review: Financial review

14 % Sales Jewellery Maisons 4 590 million 8 % Specialist Watchmakers 2 323 million 52 % Montblanc Maison 723 million Other Businesses 1 231 million 26 %

Jewellery Maisons in € millions 31 March 2012 31 March 2011 Change Sales 4 590 3 479 +32 % Operating results 1 510 1 062 +42 % Operating margin 32.9 % 30.5 % +240 bps

The Jewellery Maisons’ sales grew by 32 %. Both Cartier and Van Cleef & Arpels performed exceptionally well. Both Maisons reported high growth across products and channels. Demand for High Jewellery pieces was solid and more accessible jewellery ranges enjoyed very strong demand. Cartier’s watch collections, including premium and technical pieces, were equally successful. The significant increase in sales and continuing cost discipline generated an operating margin of 33 %.

Specialist Watchmakers in € millions 31 March 2012 31 March 2011 Change Sales 2 323 1 774 +31 % Operating results 539 379 +42 % Operating margin 23.2 % 21.4 % +180 bps

The Specialist Watchmakers’ sales increased by 31 %. All Maisons improved their performance. Last year’s sales and results were negatively impacted by the reorganisation of Baume & Mercier. Overcoming higher input costs and the strength of the Swiss franc, the operating margin increased to 23 %, reflecting the solid demand for premium watches and strong pricing power.

Montblanc Maison in € millions 31 March 2012 31 March 2011 Change Sales 723 672 +8 % Operating result 119 109 +9 % Operating margin 16.4 % 16.2 % +20 bps

Driven by demand for watches and accessories, Montblanc’s sales increased by 8 %. The Maison maintained an operating margin of 16 %.

32 Richemont Annual Report and Accounts 2012 Business review: Financial review

Other businesses in € millions 31 March 2012 31 March 2011 Change Sales 1 231 967 +27 % Operating results (35) (34) -3 % Operating margin (2.8) % (3.5) % +70 bps

The ‘Other’ segment includes the Group’s Fashion and Accessories businesses, Net-a-Porter and the Group’s watch component manufacturing activities. Richemont’s Fashion & Accessories Maisons reported sales growth of 18 % and generated improved profits of € 50 million (2011: profits of € 29 million). The performance of Alfred Dunhill and Chloé were particularly noteworthy. Sales at Net-a-Porter continued to rise above the Group’s average rate, including the first full year of Mr Porter. The amortisation of intangibles and the costs associated with the continued expansion of Net-a-Porter’s platforms contributed to its overall increase in losses. On a cash basis, Net-a-Porter generated positive results. The Group’s watch component manufacturing activities incurred losses, which were broadly in line with the comparative year.

Corporate costs in € millions 31 March 2012 31 March 2011 Change Corporate costs (93) (161) -42 % Central support services (170) (159) +7 % Other operating income/(expense), net 77 (2) n/a

Corporate costs represent the costs of central management, marketing support and other central functions, known as central support services, as well as other expenses and income which are not allocated to specific business areas, including foreign exchange hedging gains and losses. Central support service expenses increased, largely due to the negative impact of a stronger Swiss franc. Other operating income/(expense) included gains of € 108 million (2011: gains of € 13 million) relating to the Group’s exchange rate hedging programme, which are reported within gross profit.

Richard Lepeu Gary Saage Deputy Chief Executive Officer Chief Financial Officer

Compagnie Financière Richemont SA Geneva, 16 May 2012

Richemont Annual Report and Accounts 2012 33 Business review: Financial review

Responsible Responsible Jewellery Jewelry Council Council

Richemont has a long-standing commitment to doing business Responsible Jewellery Council responsibly. Building trust in our Maisons, our operating The Responsible Jewellery Council (‘RJC’) promotes responsible companies and brand, lies at the heart of the way we work. ethical, human rights, social and environmental practices in the gold and diamond supply chains. The RJC’s members span from The Group’s activities are guided by a common framework which mining houses to retailers. Under the RJC’s certification system, helps Richemont managers, employees, suppliers and associates members must be audited by accredited, third-party auditors to to understand our expectations. The framework includes our verify compliance with the RJC’s own Code of Practices. Further Code of Business Ethics and Corporate Social Responsibility information can be obtained at www.responsiblejewellery.com Guidelines, as well as codes of conduct for employees, suppliers and for environmental management. Richemont is a long-term supporter of the RJC and seven of its Maisons are now certified members: Cartier, Van Cleef & Arpels, RICHEMONT PEOPLE Baume & Mercier, Jaeger-LeCoultre, Piaget, Vacheron Constantin Richemont directly employs some 25 000 people engaged and Montblanc. Together, these Maisons account for some 75 % in manufacturing, retail, distribution, after sales service and of the Group’s total sales. administrative functions. Two-thirds of the employees are based in Europe, primarily in Switzerland, France and Germany, ENVIRONMENT where manufacturing is concentrated. Our Environmental Code of Conduct is built on internationally recognised standards for environmental management and includes Training industry-specific issues. Our direct impact upon biodiversity Training is a key component of our Maisons’ success and is is low and we decrease it further by reducing our impact on fully integrated in the performance and development appraisal climate change and the careful disposal of waste products. process for all staff. The quality and longevity of our goods relies on highly skilled craftspeople, and our customer satisfaction The Group seeks to minimise its carbon emissions through on passionate retail staff. energy-efficient building design and energy saving measures in our activities, together with a programme of carbon offset purchases. Richemont supports The Creative Academy in Milan, which The costs of offset purchases are re-invoiced to the Maisons offers students a Masters programme in Arts in Design. The to increase awareness and to encourage energy efficiency. Academy’s mission is to promote the integration of young talents within the Group. COMMUNITY Our Maisons support art and cultural programmes that reflect The Group collaborates with the Watchmakers of Switzerland their historical background and the nature of their products, Training and Educational Programme (‘WOSTEP’), and has together with global and local community programmes. Art established dedicated watchmaking schools in Dallas, Hong Kong and cultural programmes include Cartier Fondation pour l’Art and Shanghai. Contemporain, Montblanc de la Culture Arts Patronage Award, The Richemont Retail Academy in Shanghai was inaugurated in Fondazione Cologni dei Mestieri d’Arte and the Fondation November 2011. It provides a platform for recruiting and training de la Haute Horlogerie. Globally, Richemont supports Laureus personnel for our Maisons’ boutiques across China. Sport for Good.

SUPPLY CHAIN 2012 Corporate Responsibility Report The Group’s full supply chain often lies beyond our direct control. Richemont’s full annual corporate responsibility report is on We therefore seek to influence the behaviour of our suppliers the Group’s website at www.richemont.com/corporate-social- through our model Supplier Code of Conduct and by collaborating responsibility.html with peers such as the Responsible Jewellery Council. Each year, some 50 suppliers are audited as part of the regular relationship with the Maisons.

34 Richemont Annual Report and Accounts 2012 Business review: Corporate responsibility

“Raising the money we need to fund Peace Parks Foundation’s work into the future is tough in recessionary times. Even so, I am constantly astounded by how willing people are to help good causes. If they know it’s honest and transparent, that you aren’t using the donations to fund high salaries and administration costs, and that you deliver what you promised them, the money is there. Overall I am optimistic.” Johann Rupert, Chairman of Peace Parks Foundation

A big dream of a better reality 2001 Over the last two decades, a dream magnificent in its regional In June, Lesotho and South Africa sign a memorandum of extent and momentous in its global importance has been turning understanding (‘MoU’) to work towards creating the Maloti- steadily into an African reality. In this time, the visionary architects Drakensberg TFCA. of this dream have passed the mantle to a new generation of public On 2 November, Lesotho’s Sehlabathebe National Park is and private sector leaders. With the patronage of international proclaimed. The Foundation supports management and tourism public funders and financial institutions, listed companies, family planning and infrastructural development in the park. foundations and individuals, they have created the partnerships, policies and protocols to bring the big dream of transfrontier Later that month, Mozambique proclaims the million-hectare conservation areas, or peace parks, to life. Limpopo National Park ahead of its inclusion in the Great Limpopo Transfrontier Park. The country asks the Foundation Pivotal in this great undertaking is Peace Parks Foundation, which to assist in overseeing this Southern African Development this year marks 15 years of dedication to facilitating the establishment Community (‘SADC’)-approved project with investment from of Southern Africa’s vast and vital peace parks and developing the the German Government through KfW. Twenty-five elephants human resources to support sustainable local economic development, are translocated from Kruger National Park. the conservation of biodiversity, and regional peace and stability. The milestones of this period, which were achieved side by side 2002 with a diverse array of stakeholders, particularly the governments As the year draws to a close, the heads of state of Mozambique, of the region, have been many. This, even while the world has been South Africa and Zimbabwe sign a treaty establishing the buffeted by historic turbulence and volatility. Great Limpopo Transfrontier Park. And so, it is with deep appreciation and humble honour that 2003 we consider the progress made in conserving our natural heritage In July, the Mapungubwe Cultural Landscape is proclaimed and wildlife resources, in sharing new science and best practices, a World Heritage Site. August sees the presidents of Namibia and and in pushing back the ravages of poverty and the indignity South Africa sign a treaty to establish the /Ai/Ais-Richtersveld of unemployment. For this is a dream of a better reality for Transfrontier Park. Further east, the Ministers for the Environment Africa and her people that has much meaning to convey in of Lesotho and South Africa, and representatives of the World a world grappling with issues of sustainability. Bank, launch the Maloti–Drakensberg TFCA. 1997 On 1 February, visionary leaders President Nelson Mandela, Prince Bernhard of the Netherlands and Dr Anton Rupert establish Peace Parks Foundation. The intent is to facilitate the linking of Southern Africa’s protected areas, thereby restoring the integrity of ancient ecosystems and providing for the free movement of wildlife, with benefits flowing to local communities and the region. 2000 On 12 May, presidents Festus Mogae and Thabo Mbeki open the first transfrontier conservation area (‘TFCA’), the Kgalagadi Transfrontier Park, spanning Botswana and South Africa. On 22 June, five protocols are signed for the Lubombo TFCA, linking protected areas in Mozambique, South Africa and Swaziland. Founding patrons: President Nelson Mandela; Prince Bernhard of the Netherlands; and Dr Anton Rupert

Richemont Annual Report and Accounts 2012 35 Peace Parks Foundation

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 2008 Management plans are completed for the Maloti–Drakensberg TFCA. In Namibia, the Sperrgebiet National Park is proclaimed. With the subsequent proclamation of Dorob National Park, the country’s entire coastline is protected. By the end of the year, over 4 600 animals have been translocated to Limpopo National Park from Kruger. 2009 With South Africa’s National Lottery Distribution Trust Fund’s support, work starts on developing the !Ae!Hai Kalahari Heritage Park in the Kgalagadi Transfrontier Park. The project aims to preserve the cultural and traditional knowledge of the ‡Khomani San and Mier communities while improving their livelihood.

Over 4 600 animals have been translocated to Limpopo National Park from Kruger In Mozambique, the government declares the 678-square- kilometre Ponta do Ouro Partial Marine Reserve, linking with 2004 iSimangaliso Wetland Park in South Africa to establish Africa’s The Ministers for the Environment of Malawi and Zambia provide first transfrontier marine protected area. a framework for the development of the Malawi/Zambia TFCAs. 2010 Peace Parks Foundation and its partners assist South African National In June, the German Federal Ministry for Economic Cooperation Parks to consolidate Mapungubwe National Park, the core area and Development announces funding of € 20 million through of the country’s contribution to the proposed Greater Mapungubwe KfW towards the development of KAZA TFCA. TFCA linking Botswana, South Africa and Zimbabwe. In September, the first wildlife translocation from game reserves 2005 in South Africa to Maputo Special Reserve in the Lubombo TFCA In September the first tourism facilities are opened in Mozambique’s takes place. Joint activities between the Namibian and South Limpopo National Park. The World Bank approves USD 34 million African components of the /Ai/Ais-Richtersveld TFCA are marked to develop Mozambique’s transfrontier conservation areas. by the launch, in October, of the Orange River Festival. With events such as cycling, canoeing and running, the festival is set 2006 to become an annual event, dubbed The Desert Knights. On 22 June, Ministers for the Environment of Botswana, South Africa and Zimbabwe sign an MoU to form the Greater Mapungubwe TFCA. With the support of the Foundation, the SA College for Tourism Tracker Academy is established to help preserve the traditional On 16 August, the Giriyondo Access Facility between Kruger skill of tracking. In August, the Hans Hoheisen Research Station and Limpopo national parks, part of the Great Limpopo reopens near Kruger’s Orpen Gate. Here the Foundation facilitates Transfrontier Park, is opened. research into wildlife diseases, training and various veterinary projects. At the end of the year, an MoU is signed to develop the world’s 2011 largest TFCA, Kavango–Zambezi (‘KAZA’), uniting Angola, In March, Ahi Zameni Chemucane, an association representing Botswana, Namibia, Zambia and Zimbabwe. three rural Mozambican communities, signs a 25-year partnership 2007 agreement to develop a luxury eco-tourist lodge in Maputo Special In the Kgalagadi Transfrontier Park, the heads of state of Botswana, Reserve in the Lubombo TFCA. It is the first time that a Mozambican Namibia and South Africa open the Mata-Mata Tourist Access community has received long-term concession rights to a prime Facility between Namibia and South Africa. Later, !Xaus Lodge, tourism site in a major nature reserve. owned by the ‡Khomani San and Mier communities, welcomes its In May, the headquarters of the Ponta do Ouro Partial Marine first visitors. In the /Ai/Ais-Richtersveld, the pontoon and customs Reserve are officially opened. Here, on the shoreline, the turtle buildings on the banks of the Orange River are refurbished and monitoring programme has successfully standardised data-capture the Sendelingsdrift access facility on the Orange River between techniques for the endangered loggerhead and leatherback turtles Namibia and South Africa opens. that nest in the region. The sites are monitored by 46 guards from In KAZA, an integrated development planning process is initiated the local community. to ensure the sustainable and equitable development, utilisation A unique elephant-restraining fence is erected along the Futi and management of all components of the TFCA. The process River to link Maputo Special Reserve with Tembe Elephant Park will eventually be implemented in most of the TFCAs. in South Africa, allowing for a significant reduction in human- Further north, a wildlife restocking programme of Nyika National wildlife conflict. A month later, the Futi Corridor is proclaimed Park and Vwaza Marsh Wildlife Reserve in Malawi gets underway a protected area. following the success of the joint law enforcement project to combat In August, at the SADC Summit in Angola, the leaders of Angola, poaching in the Malawi/Zambia TFCAs. Botswana, Namibia, Zambia and Zimbabwe sign a treaty to establish the 444 000 km2 KAZA TFCA, a conservation area that rivals Sweden in its breath-taking scale.

36 Richemont Annual Report and Accounts 2012 Peace Parks Foundation

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 2012 and beyond Developing much-needed skills The dream lives on. Peace Parks Foundation remains steadfast The SA College for Tourism was established in 2001 by in its commitment to act as a catalyst in regional conservation the late Dr Anton Rupert, then Chairman of Peace Parks development initiatives. Of course, this is not possible without Foundation. Every year, the College trains 90 young women the continued generosity of the friends and supporters of the from disadvantaged backgrounds on a year-long course peace parks concept. that focuses exclusively on developing hospitality service skills. Thus equipped, they are able to return home and find “Our job is to keep on doing what we do – giving the tools employment within the tourism infrastructure supported to the right people – so they can do what they really need and by TFCAs. To date, 612 young women have graduated, want to do, which is to improve the lives of their communities all sponsored by the Foundation and the College’s donors. in a sustainable way. At a local level, and indeed at a global level, Since 2010, the College also trains 16 trackers annually. this means finding practical, mutually beneficial ways for man and nature to thrive together. If we can keep on demonstrating Since its inception in 1997, the Southern African Wildlife that this is in fact possible then I’m very hopeful about the College has trained more than 6 000 students from across future.” – Johann Rupert, Chairman of Peace Parks Foundation Africa in the essential skills of managing parks and conservation areas. Supported by the Foundation, which Contact sponsors bursaries and contributes to operating costs, the Werner Myburgh, CEO, Peace Parks Foundation college programme covers Geographical Information Systems, Tel: +27 (0)21 880 5100 Fax: +27 (0)21 880 1173 community-based natural resource management, biodiversity Email: [email protected] management, resource economics and practical skills such as Website: www.peaceparks.org 4x4 vehicle maintenance, managing fires and anti-poaching training. Many of its graduates have gone on to occupy senior positions in some of the region’s most prominent wildlife areas.

Transfrontier Conservation Area – STATUS Treaty signed 1. /Ais/Ais-Richtersveld TP Namibia/South Africa 2. Kgalagadi TP Botswana/ South Africa 4. Great Limpopo TP Mozambique/South Africa/Zimbabwe 9. Kavango Zambezi TFCA Angola/Botswana/Namibia/ Zambia/Zimbabwe MoU signed 3. Great Mapungubwe TFCA Botswana/South Africa/Zimbabwe 5. Lubombo TFCA Mozambique/South Africa/Swaziland 6. Maloti – Drakensberg TFCA Lesotho/South Africa) 7. Iona – Skeleton Coast TFCA Angola/Namibia 11. Malawi – Zambia TFCA Malawi/Zambia 14. Chimanimani TFCA Mozambique/Zimbabwe MoU Pending 8. Liuwa Plains – Mussuma TFCA Angola/Zambia 10. Lower Zambezi – Mana Pools TFCA Zambia/Zimbabwe Conceptual phase 12. niassa – Selous TFCA Mozambique/Tanzania 13. Mnazi Bay – Quirimbas TFCMA Mozambique/Tanzania

Glossary MoU Memorandum of Understanding TP Transfrontier Park TFCA Transfrontier Conservation Area TFCMA Transfrontier Conservation Marine Area

Richemont Annual Report and Accounts 2012 37 Peace Parks Foundation

GENERAL PRINCIPLES Compagnie Financière Rupert Richemont (the ‘Group’) is committed to maintaining a high Compagnie Financière Rupert, a Swiss partnership limited standard of corporate governance. It subscribes to the principles by shares, holds 522 000 000 Richemont ‘B’ registered shares laid down in the Swiss Code of Best Practice for Corporate representing 9.1 % of the equity of the Company and controlling Governance published by ‘economiesuisse’, the Swiss Business 50 % of the Company’s voting rights. Mr Johann Rupert, the Federation. It also adheres to the requirements of the ‘Directive Executive Chairman and Chief Executive Officer of Richemont, on Information Relating to Corporate Governance’ (‘DCG’), is the sole General Managing Partner of Compagnie Financière issued by SIX Swiss Exchange. In addition to Swiss law, the Group Rupert. Mr Jürgen Schrempp and Mr Ruggero Magnoni, both complies with the Listing Rules of SIX Swiss Exchange. It also non-executive directors of the Company, and Mr Jan Rupert, complies with the rules of the Johannesburg stock exchange, to the an executive director of the Company, are partners of Compagnie extent that they apply to companies with secondary listings there. Financière Rupert. The Group’s corporate governance principles and practices are Compagnie Financière Rupert does not itself hold any reviewed by the Audit Committee and the Board on a regular Richemont ‘A’ shares. Parties associated with Mr Johann Rupert basis in the light of prevailing best practices. and Compagnie Financière Rupert held a further 2 836 664 ‘A’ shares or ‘A’ share equivalents at 31 March 2012. The Group’s principles of corporate governance are embodied in the statutes of Compagnie Financière Richemont SA, in its Other significant shareholders Corporate Governance Regulations and in the terms of reference During the year under review, the Company received notifications of the Audit, Compensation and Nominations Committees of from two shareholders that they no longer held significant the Compagnie Financière Richemont SA Board. The Corporate shareholdings representing in excess of 3 % of the voting rights. Governance Regulations are available on the Group’s website: These notifications, which are detailed below, were promptly www.richemont.com notified to SIX Swiss Exchange, which simultaneously publishes such notifications on its website. This section of the annual report follows the recommendations of SIX Swiss Exchange DCG. Headings follow the format of Public Investment Corporation Limited (‘PIC’), Pretoria, the DCG and cross-references to other sections of the report are South Africa notified the Company on 13 July 2011 that provided where appropriate. In certain instances, where the issues accounts under its management held Richemont South African contained in the directive do not apply to Richemont or where the Depository Receipts equivalent to less than 3 % of the Company’s amounts involved are not material, no disclosure may be given. voting rights. PIC’s previous notification, on 22 February 2008, stated that its holding was equivalent to 3.13 % of the Company’s 1. GROUP STRUCTURE AND SIGNIFICANT SHAREHOLDERS voting rights. Structure Compagnie Financière Richemont SA (the ‘Company’) is a On 9 September 2011 Richemont Employee Benefits Limited Swiss company with its registered office at 50, chemin de la (‘REBL’), an indirectly held subsidiary, notified the Company that Chênaie, CH 1293 Bellevue, Geneva. The Company’s Board its shareholdings and rights to acquire further shares were less of Directors (the ‘Board’) is the Group’s supervisory board, than 3 % of the Company’s voting rights. The shares and rights composed of a majority of non-executive directors. had previously been acquired by REBL to hedge liabilities arising from the Group’s stock option plan. On 19 January 2012, REBL The Group’s luxury goods businesses are separated into four notified the Company that its holding of disposal positions arising segments for presentation purposes: (i) Jewellery Maisons; (ii) from the Group’s long-term stock option plan represented less Specialist Watchmakers; (iii) Montblanc Maison; and (iv) Other than 3 % of the voting rights of the Company. Businesses. Each of the Maisons in the Group enjoys a high degree of autonomy, with its own management group under a chief As at 31 March 2012, Compagnie Financière Rupert is the only executive officer. To complement those businesses, the Group significant shareholder in the Company. has established central functions and a regional structure around Cross shareholdings the world to provide central controlling and support services in Richemont does not hold an interest in any company which terms of distribution, finance, legal and administration services. is itself a shareholder in the Group. Details of the principal companies within the Group are set out in note 40 to the Group’s consolidated financial statements. The market capitalisation and ISIN number of the Richemont ‘A’ shares are given in section 2 of this corporate governance report, which deals with the capital structure.

38 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 2. CAPITAL STRUCTURE On 16 May 2012, Richemont announced a new programme Shares envisaging the buy-back of 10 000 000 of its own ‘A’ bearer There are 522 000 000 ‘A’ bearer shares and 522 000 000 shares over a two year period, linked to the requirements of ‘B’ registered shares in issue. Richemont ‘A’ bearer shares are the executive stock option plan. listed and traded on SIX Swiss Exchange. The ‘B’ registered Details of the Group’s stock option plan are set out in section shares are not listed and are held by Compagnie Financière 5 of this report and in note 36 to the Group’s consolidated Rupert, as detailed above. Each ‘A’ bearer share has a par value financial statements. The operating expense charged to the of CHF 1.00 and each ‘B’ registered share has a par value of consolidated statement of comprehensive income in respect of CHF 0.10. Further details are given in note 19 to the Group’s the fair value of options granted to executives is set out on page consolidated financial statements. 103 of this report. During the three years ended 31 March 2012, there were no When ‘A’ shares or former ‘A’ units are bought back, a reserve changes to the Company’s capital structure. for treasury shares, equal to the cost value of the shares purchased At 31 March 2012, Richemont’s market capitalisation, based on in the market, is established as an element of shareholders’ equity a closing price of CHF 56.60 per share and a total of 522 000 000 in the Group’s consolidated statement of financial position. ‘A’ shares in issue, was CHF 29 545 million. The overall valuation The cost of acquiring over-the-counter call options is also of the Group at the year end, reflecting the value of both the listed charged to this reserve. As shares are sold as a consequence of ‘A’ shares and the unlisted ‘B’ shares, was CHF 32 500 million. the exercise of options by executives, the reserve is correspondingly reduced. During the year under review, the reserve for treasury Over the preceding year, the highest closing price of the ‘A’ share shares increased by a net € 190 million as a consequence of the was CHF 59.55 on 14 March 2012, and the lowest closing price repurchase of ‘A’ shares, as described above, partly offset by the of the ‘A’ share was CHF 38.51 on 10 August 2011. exercise of options by executives and the consequent delivery of The ISIN of Richemont ‘A’ shares is CH0045039655 and the ‘A’ shares from the Group to those executives. Further details are Swiss ‘Valorennummer’ is 4503965. given in note 19 to the Group’s consolidated financial statements. Dividend Voting rights Holders of ‘A’ and ‘B’ shares enjoy the same dividend rights, Holders of Richemont shares may attend and vote at meetings but due to the differing par values of the two classes of shares, of shareholders of the Company. They may attend in person ‘B’ shareholders receive one tenth of the dividend per share paid or may appoint the Company or a third party to represent them to holders of the ‘A’ shares. at the meeting. In respect of the financial year ended 31 March 2012, a dividend There is no limit on the number of shares that may be held by of CHF 0.550 per ‘A’ share and CHF 0.055 per ‘B’ share has any given party nor any restriction on the voting rights attaching been proposed. to those shares. Share buy-back programmes Richemont ‘A’ and ‘B’ shares have equal rights to share in Over the course of the preceding twelve-year period ended the dividends and capital of the Company; ‘B’ shareholders 31 March 2011, the Group had repurchased a total of 34 552 934 are entitled to receive 10 % of the dividend per share paid to former ‘A’ units and 18 283 585 ‘A’ shares through the market ‘A’ shareholders and 9.1 % of the Company’s capital. However, to meet obligations under stock option plans for executives. despite the differing nominal values of the ‘A’ and ‘B’ shares, each ‘B’ share conveys the same voting rights as each ‘A’ share, During the year under review, the Group acquired 6 454 664 in normal circumstances, at shareholder meetings. Richemont ‘A’ shares through the exercise of over-the-counter call options and ‘B’ shareholders therefore control 50 % of the votes at shareholder repurchased a further 1 577 027 ‘A’ shares through the market. meetings. The ‘B’ registered shares are entirely held by Compagnie Taking into account the exercise of options by executives during Financière Rupert. In accordance with Swiss company law, certain the course of the year and other activities linked to the hedging resolutions, notably those relating to the objects of the Company, programme, the balance held in treasury at 31 March 2012 was its capital structure, the transfer of its registered office or its 24 289 173 ‘A’ shares. At that date, the Group also held over-the- dissolution, require the approval of two thirds of the shares counter call options to acquire a further 4 204 057 ‘A’ shares. represented and an absolute majority of the nominal share capital. On 27 May 2010, Richemont announced a programme envisaging Statutory quorums the buy-back of 10 000 000 of its own ‘A’ bearer shares over a The general meeting of shareholders is the Company’s ultimate two year period. On 18 May 2011, the Board of Directors decided decision-making forum. Resolutions of the general meeting are to extend the buy-back programme by an additional 5 000 000 generally passed by an absolute majority of the votes represented ‘A’ bearer shares. The extended buy-back programme thus at the meeting. As detailed above, certain resolutions may require amounted to 15 000 000 ‘A’ bearer shares. At a meeting held on the approval of two thirds of the shares represented at the 22 March 2012, the Board of Directors considered the progress meeting and an absolute majority of the nominal share capital. made to date and the requirements of the executive stock option plan. At that meeting, it was decided that the current programme should be terminated with immediate effect. 12 690 200 ‘A’ bearer shares had been repurchased within the scope of the extended programme.

Richemont Annual Report and Accounts 2012 39 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 The Annual General Meeting in respect of the financial year 3. BOARD OF DIRECTORS ended 31 March 2012 will be held on 5 September 2012 at the Responsibilities and membership Four Seasons Hotel des Bergues, Geneva. The agenda for that The Board is responsible for the overall strategic direction of the meeting is set out on page 116 of this report. The notice period Group and the appointment of senior management. In addition, and agenda in respect of the meeting follow the requirements it is responsible for establishing financial controls and appropriate of Swiss company law. Holders of a minimum of one million procedures for the management of risk within the Group as well ‘A’ shares in the Company with a nominal value of CHF 1 million as the overall supervision of the business. The Board is responsible may request that an item be placed on the agenda for the meeting. for the preparation of the financial statements of the Company Such requests must be submitted, in writing, at least 20 days and of the Group and for the organisation of shareholder meetings. in advance of the deadline for publication of the formal notice The Board is composed principally of non-executive directors convening the meeting. with diverse professional and business backgrounds. Seven South African Depository Receipts nationalities are represented on the Board, which was composed Richemont Securities SA, previously owned in equal part by the of 20 members at 31 March 2012. Board members are proposed Company and Reinet Investments S.C.A. and now a wholly- for election on an individual basis at each year’s Annual General owned subsidiary of the Company, acts as Depository for the Meeting (‘AGM’) for a term of one year. All directors are eligible issuance, transfer and cancellation of Richemont South African to stand for re-election each year, details of nominations being Depository Receipts (‘DRs’), which are traded on the Johannesburg given in the notice of the AGM published on page 116. There stock exchange operated by JSE Limited. DRs trade in the ratio is no restriction on the number of times a director may seek of ten DRs to each Richemont ‘A’ share. The terms and conditions re-election and no formal age limit for directors. applicable to DRs are set out in the Deposit Agreement entered In terms of its regular business, the Board generally meets for into between Richemont Securities SA, as Depository, and the half a day to a full day, five times per annum. Further meetings on Company, as Issuer. specific topics are held on an ad hoc basis. During the year under In its capacity as Depository, Richemont Securities SA holds one review, the Board of Directors held five meetings. These included ‘A’ share in safe custody for every ten DRs in issue. Richemont a two-day meeting with senior management of certain Maisons at Securities SA’s interest in the ‘A’ shares that it holds is therefore which strategy, marketing plans and new products were presented. non-beneficial. At 31 March 2012, Richemont Securities SA The Executive Chairman and Chief Executive Officer, the Deputy held 110 176 739 ‘A’ shares in safe custody in respect of the DRs Chief Executive Officer and Chief Financial Officer establish in issue. This amount represents some 21 % of the ‘A’ shares. the agendas for the meetings of the Board. Directors may ask that an item be placed on the agenda for any meeting. Financial Dividends received by Richemont Securities SA are payable in reports and supporting information in respect of agenda items are rand to South African residents. Dividends are converted upon circulated to members of the Board in advance of each meeting. receipt by Richemont Securities SA and remitted to the holders of DRs. Non-South African resident holders of DRs may receive Two members of the Group Management Committee – the the dividends in Swiss francs, subject to their residence status. Corporate Finance Director and the Director of Corporate Affairs – attend meetings of the Board. Other members of senior Holders of DRs issued by Richemont Securities SA are not management may be invited to attend periodically to address entitled to attend the shareholders’ meeting of Compagnie specific subjects. The Board may invite external advisors to Financière Richemont SA or to vote in person. Rather, DR holders attend meetings. are canvassed as to their voting instructions by Richemont Securities SA, which then represents the holders as their proxy Board Committees at shareholder meetings. In terms of the Group’s framework of corporate governance, the Board has established an Audit Committee, a Compensation Transferability of shares Committee and a Nominations Committee. The composition of Richemont’s ‘A’ shares are issued in bearer form. They are issued these Committees is indicated below and in the biographical notes in the form of a permanent global certificate. Each shareholder on Board members. In addition to these Committees of the Board, retains a pro-rata interest in the relevant permanent global the Group’s senior management are members of the Group certificate, which remains in safekeeping with SIX SIS AG. Management Committee. Shareholders do not have the right to request the printing and delivery of individually certificated shares. Individual share Each Board Committee has its own written Charter outlining its certificates may however be printed and delivered, or otherwise duties and responsibilities and a Chairman elected by the Board. permitted, if considered appropriate by the Company. There The Chairman of each Committee presents a summary of the are no restrictions on transfers of shareholdings. proceedings of each Committee meeting to the Board. All Board Committees are entitled to invite members of senior management Transfers of the unlisted ‘B’ registered shares in the Company, and external specialists to attend meetings for specific matters which are held solely by Compagnie Financière Rupert, must on an ad-hoc basis. be approved by the Board.

40 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Audit Committee Compensation Committee The five members of the Audit Committee are non-executive The Compensation Committee is composed of three non-executive directors: Josua Malherbe (Chairman from September 2011); directors: Lord Renwick of Clifton (Chairman); Lord Douro; and Yves-Andre Istel (Chairman to August 2011); Ruggero Magnoni; Yves-Andre Istel. To assist it in its deliberations, the Committee Lord Renwick of Clifton; and Dominique Rochat. The Chief may draw on support from the Group’s internal specialists and Financial Officer attends all meetings, as do the Head of Internal external advisors. Meetings of the Committee are held as necessary Audit and representatives of PricewaterhouseCoopers SA, the but at least twice per annum and typically last one to two hours. Group’s external auditors. During the year under review, the Committee met on two occasions. Meetings of the Committee are held at least three times per annum The purpose of the Committee is to advise the Board in all and have a typical duration of half a day. During the year under aspects of compensation policy insofar as it relates to members review, three meetings took place. The Committee meets in camera of the Board, the Group Management Committee and senior with the external auditors during the course of each meeting. executives and to establish a framework for the compensation of executive management. The Committee is responsible for The Audit Committee’s principal tasks are to: setting the compensation of the non-executive directors and • satisfy itself that the consolidated financial statements follow the Executive Chairman, for approving the compensation of approved accounting principles and give a true and fair view the members of the Board and for reviewing the compensation of the Group’s financial position and results; of all other members of senior management. • recommend to the Board the appointment, re-appointment or The Committee oversees the administration of the Group’s dismissal of the external auditors and keep under review their long-term, share-based compensation plan for executive members independence and objectivity as well as their level of of the Board and, inter alia, approves the awards granted to compensation; executive directors, taking into account the recommendations of the Executive Chairman; approves the awards made to • examine and review, with both external and internal auditors, other executives in aggregate, recognising that the Chairman’s the adequacy and effectiveness of the Group’s management Committee has the authority to make awards to executives other information systems as well as accounting, financial and than those serving on the Board. In addition, the Committee operational controls; oversees any other material long-term compensation plans for • oversee the effectiveness of the Group’s Internal Audit function executives of the Group and approves awards under such plans and liaise with the Head of Internal Audit on all matters of as appropriate. significance arising from the department’s work; Nominations Committee • oversee the adequacy and effectiveness of risk management The Nominations Committee consists of the 14 non-executive practices in the Group and advise the Board on its responsibility directors meeting under the chairmanship of the Executive to perform regular risk assessments; Chairman and Chief Executive Officer. During the year under review, five meetings took place. • examine and review the adequacy, effectiveness and integrity of the processes to assure the Group’s compliance with all The principal functions of the Committee are to advise the applicable laws and regulations; and Board in areas such as the composition and size of the Board and the criteria to be applied in the selection of new members • ensure compliance with the Group’s internal Corporate of the Board and management. Governance Regulations, including the Code of Conduct for Dealings in Securities, and its Group Investment Procedures. In addition, the Committee is responsible for the nomination of directors to serve on Board Committees. The Chairman of the Audit Committee reports the findings of each Committee meeting to the Board and makes recommendations Management Committees to management on behalf of the Board. In addition to the Board Committees, there are a number of management committees. Key amongst these are the Chairman’s The Company has a risk management process which gives Committee and the Group Management Committee. These consideration to both strategic and operational risks. All identified bodies respectively perform complementary functions in terms risks are quantified according to their probability of occurrence of strategic and operational performance recommendations. and potential impact and subsequently prioritised by management. A consolidated risk report, which includes action plans prepared by the Group executive directly responsible for addressing the risk, is reviewed annually by the Audit Committee and the Board of Directors.

Section 3 of the corporate governance report continues on page 46

Richemont Annual Report and Accounts 2012 41 Corporate governance

Johann Rupert Yves-André Istel Executive Chairman and Chief Executive Officer Deputy Chairman South African, born 1950 American, born 1936 Mr Rupert was appointed to the Board in 1988. He has served Mr Istel was appointed to the Board in 1990 and became as Executive Chairman since 2002 and as Chief Executive its Deputy Chairman in 2010. A Non-Executive Director, Officer since 2010. He is Chairman of the Nominations he is a member of the Audit, Compensation and Nominations Committee, the Chairman’s Committee and the Group Committees. He served as Chairman of the Audit Committee Management Committee. He is the Managing Partner from September 2010 to September 2011. of Compagnie Financière Rupert. Mr Istel graduated from Princeton University and has had an Mr Rupert studied economics and company law at the extensive career in investment banking. He was Managing Director, University of Stellenbosch, South Africa. After working for and member of the Board, of Lehman Brothers from 1977 to 1983; the Chase Manhattan Bank and Lazard Frères in New York Co-Chairman of First Boston International from 1984 to 1988; he founded Rand Merchant Bank in 1979. In 1985 he joined Chairman of Wasserstein Perella & Co International from 1988 Rembrandt. He founded Richemont in 1988 and became to 1992; and Vice Chairman of Rothschild Inc. from 1993 to 2002. Group Chief Executive. Appointed as Executive Chairman in Mr Istel is currently Senior Advisor to Rothschild Global Financial 2002, he also served as Chief Executive Officer from October Advisory; a Non-Executive Director of Analog Devices, Inc., 2003 to September 2004. He is Non-Executive Chairman of and member of its Audit Committee; Tiedemann Wealth Board Remgro Limited, Chairman of Reinet Investments Manager of Management, and member of its Investment Committee; SA, the management company of Reinet Investments S.C.A. Chair of HealthpointCapital Business Advisory Board; and Member and a Director of Renshaw Bay (UK) Limited. of HealthpointCapital Board of Managers. Mr Rupert holds honorary doctorates in Law, Economics and Mr Istel is Chairman of the Advisory Board of the Remarque Commerce, is the Chancellor of the University of Stellenbosch Institute and the Center for French Civilisation and Culture, and is Chairman of the Peace Parks Foundation. New York University, as well as of the European Institute and the Fondation Saint-John Perse. He is a member of the Economic Club of New York and the Bretton Woods Committee.

Richard Lepeu Gary Saage Franco Cologni Deputy Chief Executive Officer Chief Financial Officer Italian, born 1934 French, born 1952 American, born 1960 Dr Cologni was appointed to the Board in 2002 and now Mr Lepeu was appointed to the Board in 2004. He is a Mr Saage was appointed to the Board in 2010. He is a serves as a Non-Executive Director and member of the member of the Chairman’s Committee and the Group member of the Chairman’s Committee and the Group Nominations Committee. Management Committee. Management Committee. He is a graduate of the University of Milan, where he later Mr Lepeu is a graduate of the Institut d’Etudes Politiques de Mr Saage is a graduate of Fairleigh Dickinson University, became a professor. As a writer, he has published several Paris and the Université de Sciences Economiques de Paris X. USA and is a Certified Public Accountant. books and articles, in particular on luxury goods, jewellery He worked in international corporate finance before joining and watches. He joined Cartier in 1969 and served as Following an early career in public accounting with Coopers Cartier in 1979 as assistant to the President. Within Cartier, Managing Director and Chairman of Cartier International. & Lybrand, he joined Cartier’s US business in 1988. he was appointed Company Secretary in 1981 and became Dr Cologni has also been closely involved with the Group’s Between 1988 and 2006, he served as Chief Operating Officer Director of Finance and Administration in 1985. He watchmakers: he served as Chairman of the Fondation of Richemont North America and of Alfred Dunhill in was nominated as Chief Executive Officer of Cartier in de la Haute Horlogerie from 2005 to 2010 and continues London. From 2006 to March 2010, he served as Group 1995 and held the post until March 2001. He served as to serve as Chairman of its Cultural Committee. Deputy Finance Director. He continues to serve as Chairman Chief Operating Officer of Richemont from April 2001 of Richemont North America and as a Director of The Dr Cologni is founder of the Richemont Creative Academy, until April 2004 and was nominated as Group Finance Net-a-Porter Group Limited. which offers Master’s degrees in design and creative Director in May 2004, a post he held until March 2010. management. He is also founder and Chairman of the Mr Saage also serves as a Director of TASIS England, non-profit institution ‘Fondazione Cologni dei Mestieri d’Arte’. an unrelated educational body. Under the patronage of this Foundation, Milan University has established a Chair dedicated to the ‘Métiers d’Arts’.

42 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Lord Douro Ruggero Magnoni Josua Malherbe British, born 1945 Italian, born 1951 South African, 1955 Lord Douro has served as a Non-Executive Director Mr Magnoni was elected as a Non-Executive Director in 2006 Mr Malherbe was appointed to the Board in 2010 and serves since 2000. He is a member of the Compensation and and is a member of the Audit and Nominations Committees. as a Non-Executive Director. He was nominated as Chairman Nominations Committees. In 2006 he became a partner of Compagnie Financière Rupert. of the Audit Committee in September 2011 and is a member of the Nominations Committee. Lord Douro holds an MA degree from Oxford University. Mr Magnoni graduated from Bocconi University, Italy and He has broad experience in banking and finance, serving holds an MBA from Columbia University, USA. Mr Malherbe qualified as a Chartered Accountant in as Chairman of Sun Life and Provincial Holdings from 1995 South Africa and worked with the predecessor firm of Mr Magnoni joined Lehman Brothers in 1977 and held a to 2000 and of the Framlington Group from 1994 to 2005. PricewaterhouseCoopers before joining Rand Merchant number of senior roles across that firm’s international activities. He is a director of Sanofi and RIT Capital Partners, and is Bank in 1985. In 1990 he joined Rembrandt Group Limited In 2000, Mr Magnoni became Head of the European Private a member of the International Advisory Board of Abengoa. and was involved with Richemont at that time. Since its Equity division and Vice Chairman of Lehman Brothers Inc He is Chairman of the Council of King’s College, London. formation in 2000, he served first as Chief Executive and in 2002, Chairman of Lehman Brothers International Italy. He was a member of the European Parliament from 1979 Officer and then as Deputy Chairman of VenFin Limited. Since 2008, Mr Magnoni has been Chairman of Nomura to 1989. International plc’s Investment Banking division for Europe, Mr Malherbe continues to serve as a director of Richemont From 1990 to 1993 he was Chairman of Dunhill Holdings Middle East and Africa. He was a member of the Board Securities S.A., Remgro Limited, Reinet Investments Manager and from 1993 to 1998 Deputy Chairman of Vendôme of Overseers of Reinet Investments S.C.A. (‘Reinet’) up S.A. and Reinet Fund Manager S.A. Luxury Group, both former subsidiaries of the Group. Since to September 2009 and has indirect interests in certain 1998 he has served as Non-Executive Chairman of Richemont investments held by Reinet. Holdings (UK) Limited, the holding company for the Group’s Mr Magnoni is a member of the boards of Omniainvest SpA, UK interests and provides consultancy services to the Group. IMMSI SpA and 422 BV. He is a founding investor in Sopaf SpA and Hanseatic Americas Limited and is involved with various philanthropic activities, including Fondazione Laureus Italia. He is a member of the Advisory Committee of the Bocconi Foundation.

Frederick Mostert Simon Murray Alain Dominique Perrin Chief Legal Counsel British, born 1940 French, born 1942 South African, born 1959 Mr Murray became a Non-Executive Director in 2003 and Mr Perrin was appointed to the Board in 2003. A Non-Executive Dr Mostert was appointed to the Board in 2010. He is is a member of the Nominations Committee. director, he is a member of the Nominations Committee. a member of the Chairman’s Committee and the Group He was educated at Bedford School in England and attended Mr Perrin is a graduate of the Ecole des Cadres et des Affaires Management Committee. SEP Stanford Business School in the United States. He began Economiques, Paris (E.D.C.). He joined Cartier in 1969, Dr Mostert holds a Master’s degree from Columbia University his business career at Jardine Matheson, with ultimate assuming a series of roles and serving as President of Cartier School of Law in New York City and a doctorate from the responsibility for the company’s engineering and trading International SA between 1981 and 1998. Overseeing the University of Johannesburg. He is a member of the New York operations. In 1980, he formed his own advisory company Group’s luxury goods businesses from 1999 to 2003, he was Bar, a solicitor of England and Wales, and practised corporate for capital-intensive engineering projects in the Asia-Pacific Chief Executive of Richemont SA (Luxembourg) from 2001 law at Shearman and Sterling and international intellectual region. In 1984 he became the Group Managing Director of to 2003 and served as an Executive Director of Compagnie property law at Fross, Zelnick, Lehrman & Zissu in New York. the Hong Kong-based conglomerate Hutchison Whampoa, Financière Richemont until March 2010. He created the He joined Richemont in 1990 and was appointed to the Group leading that company’s entry into the mobile telecommunication Fondation Cartier pour l’Art Contemporain in Paris and Management Committee in 1994. business and developing its energy business. He joined launched the annual Salon International de la Haute Horlogerie. Deutsche Bank Group as Executive Chairman Asia-Pacific Dr Mostert is a past President of the International Trademark Mr Perrin serves on the management committees of a number in 1993. In 1998 he founded Simon Murray & Associates. Association, serves on the Advisory Council of the McCarthy of non-profit organisations. He is President of the Ecole de Institute for Intellectual Property and Technology Law, is Mr Murray is currently: Executive Chairman of General Dirigeants et Créateurs d’entreprise (E.D.C.) and President a guest professor at Peking University and a Visiting Professor Enterprise Management Services (International) Limited; of the European Foundation for Management Development of University College London. He is a Director of Reinet Non-Executive Chairman of Glencore International plc; (E.F.M.D.), which delivers EQUIS and EPAS accreditations Investments Manager S.A., Reinet Fund Manager S.A., and a Non-Executive Director of Essar Energy plc, Cheung to business schools and universities around the world. The Net-a-Porter Group Limited, The Walpole Committee Kong (Holdings) Limited, Sino Forest Corporation, Greenheart He is also President of the Fondation Cartier pour l’Art Limited, Laureus World Sports Awards Limited, and Group, IRC Group, Orient Overseas (International) Limited, Contemporain and the Jeu de Paume Museum, Paris. Freedom Under Law. and Wing Tai Properties Limited.

Richemont Annual Report and Accounts 2012 43 Corporate governance

Guillaume Pictet Norbert Platt Alan Quasha Swiss, born 1950 German, born 1947 American, born 1949 Mr Pictet was appointed to the Board in 2010. A Non-Executive Mr Platt was appointed to the Board in 2005. A Non-Executive Mr Quasha was elected as a Non-Executive Director in 2000 director, he is a member of the Nominations Committee. director, he is a member of the Nominations Committee. and is a member of the Nominations Committee. Mr Pictet is a graduate of HEC, Lausanne University. His He graduated with a BSc in precision mechanical engineering He is a graduate of Harvard College, Harvard Business career in private banking has included membership of Darier from the University of Frankfurt/Main and has studied School, Harvard Law School and New York University Law Hentsch & Cie’s senior management. He has also served business and management topics at Harvard Business School School. After practising law, he moved into commerce and as an international economist in Switzerland’s Federal and at INSEAD. He worked for a number of years in the field since 1987 has been President of Quadrant Management Inc. Department of Economic Affairs. of precision instruments, working with Rollei in Germany Mr Quasha served as a director of Richemont SA, and internationally, becoming CEO of Rollei Singapore and Since 1996, Mr Pictet has been Founding Partner and Luxembourg from 1988 up until his appointment to the Managing Director of Rollei Fototechnic in Germany. Vice-Chairman of de Pury Pictet Turrettini & Cie SA. He also Board of Compagnie Financière Richemont SA. He was serves as Chairman of EIC Partner AG; as a director of Zurmont He joined Montblanc in 1987 and was President and CEO Chief Executive Officer of North American Resources Madison Management AG; and is a member of the Conseil of Montblanc International. Mr Platt served on the Group Limited, between 1988 and 1998. He was a member of the communal de Chêne-Bougeries. Management Committee from 2000 and served as Group Board of Overseers of Reinet Investments S.C.A. (‘Reinet’) Chief Executive Officer from October 2004 until March 2010. up to September 2009; he has indirect interests in certain He remains Non-Executive President of Montblanc International. investments held by Reinet and is involved as a manager of a fund in which Reinet has invested. He was a director of American Express Funds, a former Governor of the American Stock Exchange, and a former Chairman of the Visiting Committee of the Weatherhead Centre for International Affairs. Mr Quasha is currently Managing Partner of Vanterra Capital, Chairman of Brean Murray, Carret & Co; Carret Asset Management Group LLC; and HKN Inc. He is also Chairman of the American Brain Trauma Foundation.

Maria Ramos Lord Renwick of Clifton Dominique Rochat South African, born 1959 British, born 1937 Swiss, born 1949 Ms Ramos was appointed to the Board in September 2011. Lord Renwick was appointed to the Board in 1995. A Non- Maître Rochat was appointed to the Board in 2010. A Non-Executive Director, she is a member of the Executive Director, he serves as Independent Lead Director A Non-Executive Director, he is a member of the Audit and Nominations Committee. of the Board, Chairman of the Compensation Committee Nominations Committees. and is a member of the Audit and Nominations Committees. Ms Ramos holds degrees from the University of the He graduated in law from the University of Geneva Witwatersrand and the University of London and is a member He is a graduate of Cambridge University and served in the and obtained a Diploma in Comparative Legal Studies in of the Institute of Bankers. She also holds honorary doctorates British diplomatic service, rising to become Ambassador to Cambridge (UK). He is a member of the Geneva Bar. from the University of Stellenbosch and Free State University. South Africa from 1987 to 1991 and Ambassador to the Since 1975 Maître Rochat has been a practising lawyer and United States from 1991 to 1995. Previous positions held by Ms Ramos include Director- since 1982 a partner at the Geneva office of Lenz & Staehelin, General of the National Treasury of South Africa and Lord Renwick is currently Vice Chairman, Investment specialising in banking and corporate law. He is Vice Chairman Group Chief Executive of Transnet Limited. She has also Banking of JPMorgan Europe and of JPMorgan Cazenove. of RBS Coutts Bank Limited in Zurich, Vice Chairman of the served as a Non-Executive Director of Sanlam Limited, He is also Deputy Chairman of Fleming Family & Partners Boards and Chairman of the Audit Committees of Banque Audi SABMiller plc and Remgro Limited. and a Non-Executive Director of Kazakhmys plc and Bumi plc. (Suisse) SA and NBAD Private Bank (Suisse) SA. He serves on the Board of several Swiss subsidiaries of foreign groups She is currently Group Chief Executive of Absa Group and unlisted Swiss companies, and of several foundations. Limited, Chief Executive of Barclays Africa and is a member of the Executive Committee of Barclays plc. In addition, she serves on the Executive Committee of the World Economic Forum’s International Business Council.

44 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Jan Rupert Jürgen Schrempp Martha Wikstrom Manufacturing Director German, born 1944 Chief Executive Officer, Richemont Fashion South African, born 1955 Mr Schrempp was elected as a Non-Executive Director in and Accessories Mr Jan Rupert was appointed to the Board in 2006 and 2003 and is a member of the Nominations Committee. In American, born 1956 became a partner of Compagnie Financière Rupert in the 2006 he became a partner of Compagnie Financière Rupert. Ms Wikstrom was appointed to the Board in 2005 and same year. He is a member of the Chairman’s Committee served as a Non-Executive Director until June 2009. He holds a Professorship of the Federal State of Baden- and the Group Management Committee. Since then, she has served as an Executive Director and is Württemberg and honorary Doctorates from the University a member of the Chairman’s Committee and the Group’s From 1999, when he joined the Group, until March 2012, of Graz and the University of Stellenbosch. Management Committee. he was Manufacturing Director with overall responsibility Mr Schrempp is former Chairman of the Board of for the Group’s manufacturing strategy. He was appointed Ms Wikstrom is a graduate of the University of Utah and Management of DaimlerChrysler AG and of Daimler Benz to the Group Management Committee in 2000. has an extensive background in retailing and the luxury Aerospace AG. He is also a former director of Allianz AG, the goods industry. From 1981 to 1999, Ms Wikstrom worked Mr Rupert is a graduate in mechanical engineering from New York Stock Exchange, Vodafone Group plc and South with Nordstrom, rising from sales person to President of Stellenbosch University, South Africa and has had an African Airways Limited. He continues to be Non-Executive Nordstrom’s Full Line Store Group. Ms Wikstrom was extensive career in production management in the tobacco Chairman of Mercedes-Benz of South Africa. formerly Managing Director of Harrods Limited and a and watchmaking industries. Prior to joining Richemont, He is the Executive Chairman of Katleho Capital GmbH, Director of Harrods Holdings Limited and Harrods Estates. he was Manufacturing Director of Rothmans International. Chairman of Iron Mineral Beneficiation Services Limited, She also held positions as interim CEO and Board Director Independent Lead Director of SASOL and a Non-Executive of Kurt Geiger Limited. She is a founding partner of Atelier Director of Jonah Capital. He is also a member of the Management, LLC. International Investment Council of the President of the Ms Wikstrom sits as Chairman of the Board of Harrys of Republic of Togo. London Limited and is a Director of Space NK Limited. Mr Schrempp is Chairman Emeritus of the Global Business Coalition on HIV/AIDS and Honorary Consul-General of the Republic of South Africa. Amongst other distinctions, he is a Commander of the French Legion of Honour and holds South Africa’s highest civilian award, the Order of Good Hope.

Richemont Annual Report and Accounts 2012 45 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Continued from page 41 • The Group’s employee performance review process requires that members of senior management are given clearly defined targets at the beginning of each financial year. The executive Management is responsible for implementing the strategic policies directors of the Board monitor performance against these determined by the Board. Members of management are empowered targets on an ongoing basis and report progress to the Board. to conduct the day-to-day strategic and operational administration • There is regular interaction between members of the Board and of the Group including, inter alia, financial management. the Group Management Committee, for example, through the Management is responsible for the management of the Group’s presence of certain executive directors on a regular or ad hoc basis underlying businesses and investments, subject at all times to an at Board meetings and other Board Committee meetings, as obligation to provide adequate information on the development outlined above. Members of the Board are also exposed to the of those businesses to the Board. Management operates within the decision-making process at the level of each Maison through their guidelines as set out in the Group Investment Procedures and such involvement with the annual reviews of the Maisons’ strategies. other policies and procedures as may from time to time be laid down by the Board. In addition, management provides the Board with • The Group’s Internal Audit function provides an objective appropriate support to consider and evaluate strategic alternatives. means of assessing how the Group’s risks are being managed and controlled. This function’s independent status is reinforced Chairman’s Committee by the direct reporting line from the Head of Internal Audit to During the year under review, the Chairman’s Committee comprised the Chairman of the Audit Committee. The function performs all of the executive directors of the Board. Other executives were financial and operational audits in accordance with a programme invited to participate on an ad hoc basis at the discretion of the approved annually by the Audit Committee. This risk-based Executive Chairman. The Committee meets on an ad hoc basis to programme is designed to ensure that all business units as well review matters associated with the implementation of the Group’s as Group-wide issues are given sufficient audit coverage within strategic policies. During the year under review the Committee an appropriate timeframe. Findings from each audit, together met five times. with any related action plans, are reported in detail to senior Other committees have been established to determine the Group’s management; summary reports are provided to the Audit policy in specific business areas, including finance, health and Committee and discussed at Audit Committee meetings. Progress safety matters and corporate social responsibility. with implementation of corrective actions is monitored by senior management and the Audit Committee on a regular basis. 4. SENIOR MANAGEMENT The 13 members of the Group Management Committee Management contracts participate in various operational committees, as well as There are no contracts between the Group and any third parties for interacting with one another and with the Maisons and regional the management of the Company or any subsidiary in the Group. platforms as necessary. Six of the 13 members also served on the 5. COMPENSATION, SHAREHOLDINGS AND LOANS Board during the year under review. The Management Committee Compensation-setting philosophy did not meet formally during the year. Appointments to the The Group’s compensation policies are designed to ensure that Group Management Committee are made by the Board upon Group companies attract and retain management of the highest the recommendation of the Nominations Committee. calibre and motivate them to perform to the highest standards, The executive management is charged by the Board with recognising the international nature of their businesses. The implementing the strategic policies determined by the Board. Group sets high standards in the selection of executives who It is empowered to conduct the day-to-day strategic and are critical to the long-term development of the business. operational management including, inter alia, the financial The Compensation Committee of the Board is responsible for management of the Group. It is responsible for the management setting the compensation of the non-executive directors and the of the Group’s underlying businesses and investments, subject Executive Chairman and Chief Executive Officer, for approving at all times to an obligation to provide adequate information the compensation of the other executive members of the Board on the development of those businesses to the Board. and for reviewing the compensation of all other members of The Board employs various reporting means and control mechanisms senior management. The Compensation Committee considers in order to monitor the way in which senior management exercises the recommendations of the Executive Chairman and Chief the authority delegated to it. Executive Officer regarding compensation awards for the Executive Directors. For the Group Management Committee • Prior to each Board meeting, members of the Board receive a the recommendations of the Deputy Chief Executive Officer financial report, summarising recent Group, segmental and Maison and the Group Human Resources Director are also considered. financial performance as well as operational developments. The Compensation Committee may amend or reject these • The Executive Chairman and Chief Executive Officer, the recommendations. Executive Directors and members of the Group Deputy Chief Executive Officer, the Chief Executive Officer Management Committee do not have the right to attend any of Richemont’s Fashion and Accessories Maisons and the meeting where decisions are taken regarding their compensation. Chief Financial Officer report to the Board at each meeting. The Chairman of the Compensation Committee reports to the Supplementary reports are provided, as required, by the Chief full Board on the discussions and decisions taken at each meeting Legal Counsel, the Director of Corporate Affairs, the Director of the Compensation Committee. of Corporate Finance and the Company Secretary. Section 5 of the corporate governance report continues on page 48

46 Richemont Annual Report and Accounts 2012 Corporate governance

Johann Rupert Giampiero Bodino Pilar Boxford Bernard Fornas Executive Chairman and Group Art Director Group Public Relations Director Chief Executive of Cartier Chief Executive Officer Italian, born 1960 British, born 1951 French, born 1947 (For biographical details see page 42) Mr Bodino was appointed to the Group Ms Boxford was appointed to the Group Mr Fornas was appointed to the Group Management Committee in 2004. Management Committee in 2004. Management Committee in 2002. Richard Lepeu Deputy Chief Executive Officer A graduate of the Institute of Applied Arts Ms Boxford graduated in Economics and Mr Fornas graduated from Lyon Business (For biographical details see page 42) and Design of Turin, where he specialised in Finance from the Institut d’Etudes Politiques School and holds an MBA from the Kellogg car styling, industrial design and architecture, de Paris. She joined Cartier Paris in 1979 School of Management, Northwestern Gary Saage Mr Bodino has had an extensive career in the as Product Manager – Perfumes and University. Prior to joining Cartier, he worked Chief Financial Officer design industry, working with major luxury subsequently became responsible for with a number of companies in the consumer (For biographical details see page 42) and fashion houses, including Bulgari, Gucci, Cartier’s worldwide public relations strategy. products sector, including Procter & Gamble Frederick Mostert Versace and Swarovski. In 1984, she transferred to Cartier London and the International Gold Corporation, Chief Legal Counsel as Communications Director and became a where he was Jewellery Division Manager. His association with the Group, which (For biographical details see page 43) member of the management board of Cartier He then moved to Guerlain, where he was began in 1990, extends across most of the UK Limited. She was appointed Group Public International Marketing Director and Advisor Maisons and has involved watches, jewellery Jan Rupert Relations Director in February 2004. Her to the President from 1984 to 1993. and accessories. Since 2002 he has served Manufacturing Director primary role is to support the Maisons in as Group Art Director. Mr Fornas joined Cartier as International (For biographical details see page 45) the development of effective PR strategies Marketing Director in 1994. He subsequently with a view to strengthening their presence Martha Wikstrom became Chief Executive of Baume & Mercier on the world stage. Chief Executive Officer, in 2001 and was appointed Chief Executive Richemont Fashion and Accessories of Cartier in 2002. (For biographical details see page 45) He is Vice President of the Comité Colbert and a member of the board of the Fondation de la Haute Horlogerie.

Alan Grieve Albert Kaufmann Thomas Lindemann Eloy Michotte Director of Corporate Affairs General Counsel Group Human Resources Director Corporate Finance Director British, born 1952 Swiss, born 1947 German, born 1963 Belgian, born 1948 Mr Grieve was appointed to the Group Mr Kaufmann was appointed to the Group Mr Lindemann was appointed to the Group Mr Michotte was appointed to the Group Management Committee in 2004. Management Committee in 2000. Management Committee in 2005. Management Committee in 1988. Mr Grieve holds a degree in business Mr Kaufmann holds a degree from the Mr Lindemann is a graduate in economics Mr Michotte graduated in engineering administration from Heriot-Watt University Faculty of Law of the University of Geneva from Mannheim University. From 1989, from the University of Louvain in Belgium and is a member of the Institute of Chartered and has been admitted to the Geneva Bar. he held a variety of human resources and and holds an MBA from the University of Accountants of Scotland. Prior to joining He joined Cartier in 1974 to lead its legal commercial roles in the consumer products Chicago. He has had an extensive career Richemont’s predecessor companies in 1986, department and has since been responsible for company, Wella Group, before joining in international business and finance, having he worked with Price Waterhouse & Co the legal affairs of the Group’s luxury goods Montblanc in 1998 as Human Resources worked with Ford, McKinsey & Co and and Arthur Young. He served as Company companies. He was a member of the board Director. He assumed the role of Director of Bankers Trust Company prior to joining Secretary of Richemont from its formation of Cartier International and a director of Human Resources for Richemont Northern Richemont at the time of its formation in in 1988 until 2004. Vendôme Luxury Group. He was appointed Europe in 2002 and was appointed Group 1988. As Head of Corporate Finance, he to his current position in 1999. He is a Director Human Resources Director in 2005. has responsibility in particular for mergers He is a Director of Richemont Securities S.A. of Richemont Securities S.A. and acquisitions and serves on the boards and, in addition to his role at Richemont, is of a number of companies in which the Chief Executive Officer of the management Mr Kaufmann is a member of the board of Group has an interest. companies of both Reinet Investments S.C.A. the Federation of the Swiss Watch Industry, and its subsidiary Reinet Fund S.C.A. F.I.S. the Fondation de la Haute Horlogerie and In addition to his role within Richemont, He is also a director of Klinik Hirslanden the Committee of ‘economiesuisse’. he is an Executive Director of the management AG, the Swiss subsidiary of the Medi-Clinic companies of both Reinet Investments S.C.A. organisation. Mr Grieve is a founding and its subsidiary Reinet Fund S.C.A. F.I.S. member of the Laureus Sport for Good Global Foundation.

Richemont Annual Report and Accounts 2012 47 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Continued from page 46 Variable components The Group operates a short-term cash incentive and three distinct long-term benefit plans for executives. The Compensation From time to time the Group may use external consultants for Committee considers these components in total to ensure there is advice on remuneration matters. During the year, external advice an appropriate balance between reward for short-term success and on specific compensation-related matters was received from Towers long-term retention. An executive’s retention ratio is determined Watson and PricewaterhouseCoopers on share option related by comparing total compensation for the year to the long-term matters. Neither firm received any additional mandates from this variable awards already granted in the form of the Group’s three consultation. PricewaterhouseCoopers is the Company’s and the distinct plans. For share options the gains achievable on unvested Group’s external auditor, as described in section 8 of this report. options by reference to the current market share price are included. A target executive retention of at least one year is sought. Awards To ensure that the Group remains competitive in its compensation granted for each of the short and long-term incentives reflect arrangements, two separate benchmarking surveys, providing both the individual’s performance and their contribution to the details on all elements of total compensation and the mix thereof, Group’s overall results. for a wide range of executive roles including Chairman, Chief Executive Officer and other executives, are regularly considered. An annual target is set for each of the Group’s short-term and One survey focuses on the worldwide compensation of competitor long-term incentive plans. In general, actual awards are not organisations in the luxury goods sector, including LVMH determined by any pre-defined formulae and are subject to and Hermès International and the other is a comprehensive adjustment at the discretion of the Executive Chairman and study of compensation relating to executive positions of leading Chief Executive Officer and the Compensation Committee. multinational organisations with their corporate or regional Short-term variable components headquarters based in Switzerland. The level of short-term cash incentive is dependent on the Elements of compensation for Executive Directors performance of the individual executive against individual targets, and members of the Group Management Committee evaluated for the year as a whole by the Executive Chairman and Executives are rewarded in line with the level of their authority Chief Executive Officer and the Deputy Chief Executive Officer, and responsibility within the organisation. In general, an as well as the Group’s actual achievement compared to budget executive’s total compensation will comprise both fixed in terms of measurable indicators including sales, operating and variable elements. In addition to a fixed base salary and profit and cash flows. There is no prescribed ratio or weighting post-employment benefits, an executive may receive a variable of individual performance versus Group. Certain executives short-term cash incentive and an award in one of the three have a target incentive level of 40 % of salary. The final award long-term benefit plans described below. The split of fixed may be more or less than the target. and variable compensation varies by individual, reflecting In the year under review an expense of € 11 million their role and local market conditions. In the year under review (2011: € 10 million) was recognised for short-term cash incentives variable compensation represented 52 % of total compensation. in respect of Executive Directors and members of the Group With the exception of share options, all incentives are cash-settled Management Committee. This accrued amount relates to the on their due date. performance during the year under review and will be finalised and paid only when the annual results are available. The accrued The total compensation of the Executive Chairman and amount represents 66 % of the total salary and other short-term Chief Executive Officer is set by and is regularly reviewed by benefits of those individuals entitled to receive a short-term cash the Compensation Committee to ensure that it is commensurate incentive (2011: 70 %). with the demands of the role. Long-term variable components Fixed components Share options Base salary Executives may be eligible to participate in the Group’s stock The components of base salary are consistent with local practices option plan, details of which are set out on page 51 of this and may include certain benefits in kind such as car or travel report. The Compensation Committee approves both the allowance; housing; and medical insurance. The level of all awards maximum aggregate number of options to be awarded and is reviewed annually in accordance with the Group’s salary review the award to each Executive Director and member of the Group process, which takes place in May. In determining the level of Management Committee. The Committee’s approval is given any increase to base salary, consideration is given to the Group’s after considering the forecast expense to the Group; the ratio performance; the role and responsibilities of the individual; of unexercised options to issued share capital; the cost of hedging and market benchmarking information provided by external the award; and the long-term benefit to the executives. As a compensation consultants. general rule, no options are awarded should the number of Directors are reimbursed for travel and other necessary business unexercised options exceed 5 % of the issued share capital of the expenses incurred in the performance of their duties. Company. The Group does not operate any schemes to issue shares to executives as part of their compensation package.

48 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Options granted from 2008 onwards include a vesting condition Long-term Incentive Plan linked to the performance of the Company’s share price, between The Group also operates a cash-settled Long-term Incentive the grant date and relevant vesting dates, relative to the share price Plan. The purpose of this plan is to motivate and reward Maison movements of a comparative group of luxury goods businesses executives by linking a major part of their compensation package over the same period. At each vesting date, the first being 1 July to the value added to the area of the business for which they 2012, the Directors, or a duly appointed committee of the Board, are responsible, typically over a three-year period. The valuation have the discretion to lapse some, or all, of the options vesting of each Maison is consistently determined in accordance with and subject to this performance condition. The comparative rules approved by the Compensation Committee, taking into group currently includes Swatch Group Ltd, LVMH, Hermès consideration sales, operating profit and cash flows. No awards International and Tiffany & Co. The comparative group at under this plan were made in the year to any member of the Board each relevant vesting date will reflect a selection of the Group’s or Group Management Committee. luxury good competitors at that date and may therefore differ An executive will receive an award in only one of the three from the current group. long-term benefit plans described above on an annual basis. In the event that an option holder retires, all outstanding share Severance options vest immediately. In the event that an option holder There are no arrangements in place to provide for any severance terminates employment with the Group for another reason, benefit or other special departure payments for any director or unvested share options are forfeited. In certain exceptional any member of the Group Management Committee, other than circumstances, the Board may grant accelerated vesting for some their contractual notice period. In general, contractual notice or all unvested options on termination. The consequences of periods are for six months; for certain exceptions the employing a change of control are described in section 7 of this report. entity is required to provide no less than twelve-months notice. During the year under review 806 000 share options were awarded There were no changes in Executive Directors or members of to Executive Directors and members of the Group Management the Group Management Committee in the year under review. Committee at an exercise price of CHF 54.95, being the market price on the grant date. Non-executive directors’ fees The level of fees paid to non-executive directors was reviewed As a general rule, share options are not awarded to directors and revised in the year under review by reference to the fees paid and members of the Group Management Committee working by other companies included in the Swiss Market Index. The principally for a Maison as more appropriate long-term incentives following amounts may be paid in local currency equivalents. exist, specifically the long-term incentive plan described below. In addition to an annual base fee of CHF 100 000, all non- Long-term Retention Plan executive directors receive a fee of CHF 20 000 for each Board As an alternative long-term benefit to the share options plan meeting attended. described above, the Group introduced a Long-term Retention Plan (‘LRP’) in June 2010. The LRP is a cash incentive plan. Non-executive directors who are also members of the Audit For each eligible participant, the awards are set at the grant Committee or the Compensation Committee are entitled to receive date at between 50 % and 150 % of the short-term cash incentive a further fee for each Committee meeting attended. For the Audit awarded for the previous year and only become payable after Committee, its Chairman receives a fee of CHF 20 000 and the other three further years of service. The cash settlement will be subject members a fee of CHF 15 000 per meeting. For the Compensation to a comparison of the performance of the Company’s share price Committee, its Chairman receives a fee of CHF 15 000 and the relative to a comparative group of luxury goods businesses, similar other members a fee of CHF 10 000 per meeting. to the vesting conditions that apply to the Group’s share option Non-executive directors are not eligible for performance-related plan. One award was made to a member of the Group Management payments and do not receive awards under the Group’s share option Committee in June 2011, which becomes payable in 2014. The plan. There is no scheme to issue shares to non-executive directors. total LRP award was CHF 1.75 million representing 88 % of the short-term incentive award paid for 2011. Directors’ compensation The total level of compensation paid to members of the Board and As a general rule the LRP is used to reward directors and members the Group Management Committee, including pension contributions, of the Group Management Committee when neither share options, benefits in kind and all other aspects of compensation, amounted for example due to their dilutive effect, nor an award under the to € 46 378 315 during the year under review. In determining the long-term incentive plan are appropriate. value of each component of compensation, the Group has followed the valuation and measurement principles of International Financial Reporting Standards (‘IFRS’) and therefore the amounts presented include accruals. The amounts are in agreement with other IFRS information provided elsewhere in this Annual Report. All amounts are stated gross before the deduction of any related tax or amounts due by the employee.

Richemont Annual Report and Accounts 2012 49 Corporate governance

Salary and Post- short-term employment Short-term Long-term Share option employee benefits benefits incentives benefits* cost** Total € € € € € € Board of Directors Johann Rupert 1 567 243 1 509 941 – – 491 266 3 568 450 Yves-André Istel 222 570 – – – – 222 570 Richard Lepeu 3 527 766 93 644 2 524 292 357 211 1 726 634 8 229 547 Gary Saage 1 808 228 111 202 987 206 137 389 632 790 3 676 815 Franco Cologni*** 265 374 – – – – 265 374 Lord Douro 271 497 – – – – 271 497 Ruggero Magnoni*** – – – – – – Josua Malherbe 210 205 – – – – 210 205 Frederick Mostert 1 333 209 136 490 710 460 231 793 897 897 3 309 849 Simon Murray 131 893 – – – – 131 893 Alain Dominique Perrin*** 1 710 396 – – – – 1 710 396 Guillaume Pictet 164 867 – – – – 164 867 Norbert Platt 284 793 – – – – 284 793 Alan Quasha 164 867 – – – – 164 867 Maria Ramos**** 90 677 – – – – 90 677 Lord Renwick 226 692 – – – – 226 692 Dominique Rochat 185 475 – – – – 185 475 Jan Rupert 828 577 77 826 770 886 247 300 821 732 2 746 321 Jürgen Schrempp 164 867 – – – – 164 867 Martha Wikstrom 1 481 595 58 423 647 114 158 393 304 527 2 650 052 Total 14 640 791 1 987 526 5 639 958 1 132 086 4 874 846 28 275 207

Group Management Committee 6 850 466 668 226 5 910 613 1 508 079 3 165 724 18 103 108 Total key management compensation 21 491 257 2 655 752 11 550 571 2 640 165 8 040 570 46 378 315

* Long-term benefits relate to the Group’s Long-term Retention Plan and Long-term Incentive Plan.

** The cost for share options is determined in accordance with IFRS 2, Share-based Payment. Details of the valuation model and significant inputs to this model are to be found in note 36 to the consolidated financial statements.

*** Dr Franco Cologni, Mr Ruggero Magnoni and Mr Alain Dominique Perrin have formally waived their entitlement to receive any fees or compensation in respect of their duties as non-executive directors.

**** Compensation for the period from 7 September 2011, being the date of appointment to the Board, to 31 March 2012.

Significant changes in the level of compensation awarded to Maître Dominique Rochat, a non-executive director, is a partner members of the Board and the Group Management Committee of the Swiss legal firm, Lenz & Staehelin. During the year under reflect, inter alia, increases in base salaries resulting from review, Lenz & Staehelin received fees totalling € 0.7 million from changes in roles and responsibilities; exchange rate effects; the Group companies for advice on legal and taxation matters. significant improvement in the Group’s financial performance During the year the Group gave donations of € 0.8 million to the during the year under review; and the level of fees paid to Fondazione Cologni dei Mestieri d’Arte. The Foundation promotes, non-executive directors. supports and organises cultural, scientific and training initiatives The compensation of the executive directors of the Board in favour of the Arts and Crafts and the Trades of Art. Dr Franco who are also members of the Group Management Committee Cologni is the President of the Foundation. is excluded from the total compensation of the Group The Group also made donations of € 0.2 million to the Fondazione Management Committee. The members of the Group Giuliano e Maria Carmen Magnoni, a charitable organisation Management Committee are presented on page 47. supporting initiatives for young people in disadvantaged conditions. The comparative analysis of the table above is presented in Mr Ruggero Magnoni is Vice-Chairman of the Foundation. note 35(f) of the Group’s consolidated financial statements. In addition to his non-executive director’s fees, Lord Douro Salary and other short-term benefit payments received by received fees, pension contributions and other benefits totalling Mr Johann Rupert from Richemont and from its related parties, € 0.1 million in connection with his role as director and Remgro Limited, Reinet Investments Manager SA and Reinet non-executive chairman of Richemont Holdings (UK) Limited, Fund Manager SA, are donated to charity. the holding company for the Group’s UK interests, and in respect of consultancy services provided to the Group.

50 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Details of options held by executive directors and members of the Group Management Committee under the Group’s share option plan at 31 March 2012 are as follows: Number of options Weighted average 1 April Granted Exercised 31 March grant price Earliest Latest 2011 in year in year 2012 CHF vesting period expiry date Board of Directors Johann Rupert 5 626 841 – – 5 626 841 12.41 Apr 2012-Jul 2013 June 2015 Richard Lepeu 1 509 313 250 000 (239 701) 1 519 612 27.93 Apr 2012-Jul 2017 June 2020 Gary Saage 131 659 150 000 (26 722) 254 937 42.60 Jul 2012-Jul 2017 June 2020 Frederick Mostert 622 201 75 000 – 697 201 28.35 Apr 2012-Jul 2017 June 2020 Jan Rupert 1 236 343 – – 1 236 343 20.71 Apr 2012-Jul 2014 June 2017 Martha Wikstrom – 100 000 – 100 000 54.95 Jul 2015-Jul 2017 June 2020

Group Management Committee Giampiero Bodino 351 187 30 000 (145 058) 236 129 29.13 Jul 2012-Jul 2017 June 2020 Pilar Boxford 78 251 15 000 (26 720) 66 531 33.14 Apr 2012-Jul 2017 June 2020 Bernard Fornas 466 678 – (144 522) 322 156 26.54 Apr 2012-Jul 2014 June 2017 Alan Grieve 265 297 12 000 (102 598) 174 699 28.56 Apr 2012-Jul 2017 June 2020 Albert Kaufmann 1 086 420 75 000 (123 016) 1 038 404 25.61 Apr 2012-Jul 2017 June 2020 Thomas Lindemann 276 744 75 000 (99 249) 252 495 34.27 Jul 2012-Jul 2017 June 2020 Eloy Michotte 461 981 24 000 (35 000) 450 981 22.96 Apr 2012-Jul 2017 June 2020 12 112 915 806 000 (942 586) 11 976 329

In addition to their duties as non-executive directors, Dr Franco Allotment of shares Cologni and Mr Alain Dominique Perrin provided consultancy No shares were allotted to directors or members of senior services to the Group during the year. Fees for those services, management during the year under review. amounting to € 0.3 million and € 1.7 million respectively, are Share ownership included in the compensation disclosures above. The share ownership of members of the Board, the Group In accordance with the terms of the modification to the Group’s Management Committee and parties closely linked to them are executive share option plan in October 2008, executive directors disclosed in note 35(f) of the consolidated financial statements. and members of the Group Management Committee received Hedging of the Group’s stock option plan obligations vested options over shares in British American Tobacco PLC Richemont agrees with the principle that share options form a (‘BAT’) and Reinet Investments S.C.A. (‘Reinet’). At 31 March 2012, significant part of compensation and that the issue of new shares the Group recognised a liability of € 31 million in respect of its to meet the obligations under stock option plans results in dilution. obligation to deliver shares in these two entities on exercise of For this reason, Richemont has implemented a series of buy-back the options which remained outstanding at that date. The Group programmes since 1999 to acquire former ‘A’ units and ‘A’ shares holds shares in BAT and Reinet which fully hedge the liability. to meet the obligations arising under its share-based compensation Highest compensation paid to a member of the Group plans. By using its own capital to acquire these shares, Richemont Management Committee has reflected the financing cost of the stock option plans in the The total level of compensation of the highest paid director of consolidated statement of comprehensive income. In addition, the Group Management Committee was € 8 229 547, which was since 2004, Richemont has purchased over-the-counter call options paid in respect of Mr Lepeu, Deputy Chief Executive Officer. with a third party to purchase treasury shares at the same strike Mr Lepeu’s compensation is disclosed as a member of the Board. price as the share options granted to executives. These call options, It is therefore excluded from the total compensation of the Group together with the shares held, provide a comprehensive hedge of the Management Committee. Group’s anticipated obligations arising under its stock option plan. Compensation of advisory committees Awards under the Group’s stock option plan will not result in The Board has established a number of advisory committees, the issue of new capital and, in consequence, there will be no comprising executive and non-executive directors of the Board. dilution of current shareholders’ interests. The compensation of the individual members of these committees Option holders are not entitled to receive any dividends on is included in the disclosures above. unexercised options. Compensation for former members of governing bodies The exercise of options and transactions in Richemont shares During the year under review, a former member of senior and related securities by any director or member of the Group management received a fee of € 0.1 million from the Group Management Committee and their related parties is promptly for services provided to an entity in which the Group is notified to SIX Swiss Exchange, which simultaneously publishes a joint venture partner. such notifications on its website.

Richemont Annual Report and Accounts 2012 51 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Loans to members of governing bodies In the year under review, total fees and expenses paid or accrued As at 31 March 2012, there were no loans or other credits as payable to PricewaterhouseCoopers for the audit of the financial outstanding to any current or former executive, non-executive statements of the Company, the Group, its subsidiaries and related director or member of the Group Management Committee. services were € 6.7 million. Total fees and expenses paid or accrued The Group’s policy is not to extend loans to directors. There as payable in respect of the financial year to PricewaterhouseCoopers were also no non-business related loans or credits granted to for non-audit services amounted to € 1.7 million, primarily relating relatives of any executive, non-executive director or member to tax compliance services and advice. The scope of services of the Group Management Committee. provided by the external auditors is reviewed annually by the Audit Committee and the relative weight of non-audit work provided by 6. SHAREHOLDER PARTICIPATION RIGHTS the external auditors is also kept under close review. Details of shareholder voting rights and the right to attend shareholder meetings are given in section 2 of this corporate Representatives of PricewaterhouseCoopers attended all meetings governance report. of the Audit Committee held during the year as well as the meeting of the Committee held on 14 May 2012 at which the financial 7. CHANGE OF CONTROL AND DEFENCE MECHANISMS statements were reviewed. In terms of the Swiss Stock Exchange and Securities Trading Act (‘SESTA’), the Company has not elected to ‘opt out’ or ‘opt up’ in 9. INFORMATION POLICY respect of the provisions relating to the obligations for an acquirer The Group reports to shareholders in accordance with the of a significant shareholding to make a compulsory offer to all requirements of Swiss law and the guidance provided by SIX shareholders. In accordance with SESTA, any party that would Swiss Exchange. The annual report is the principal source of directly or indirectly, or acting in concert with third parties, financial and business information for shareholders. The Group’s 1 acquire more than 33 ⁄3 % of the voting rights of the Company announcement of the results for the financial year is issued in would therefore be obliged to make an offer to acquire all of the May each year. In addition to the regulatory annual and interim listed equity securities of the Company. The interest of Compagnie reports, Richemont publishes trading statements in September, Financière Rupert in 100 % of the ‘B’ registered shares in the at the time of its AGM, and in January covering the Group’s Company, which existed at the date SESTA came into force, performance during the third quarter of the financial year, does not trigger any obligation in this respect. As noted above, being the important pre-Christmas trading period. Ad hoc news Compagnie Financière Rupert controls 50 % of the voting rights announcements are made in respect of matters which the Board of the Company. considers to be of significance to shareholders, in accordance with the specific guidelines laid down by SIX Swiss Exchange. No specific provisions exist in the statutes or internal regulations of the Company which would seek to limit or block any takeover The annual and interim financial reports are distributed to all bid. No special contractual relationships exist between Group parties who have asked to be placed on the Group’s mailing list companies and directors or members of senior management which and to registered holders of South African Depository Receipts. would protect management or act as a deterrent to a change of Investors may request electronic notification that such reports control of the Company. have been published on the Group’s website. The rules of the stock option plan for executives in the Group All news announcements other than the annual and interim contain specific provisions in respect of a change of control of the financial reports are distributed by email. Shareholders and other Group. These provisions are typical in terms of such plans and interested parties may ask to be included on the distribution list would result in the immediate vesting of benefits due to participants by contacting the Company Secretary at the Company’s registered in the event of a change of control taking place. office or by email ([email protected]) or by registering on the Group’s website www.richemont.com/press-centre/company- 8. AUDITORS announcements.html The external auditors report to the Board through the Audit Committee, which also supervises the Group’s relationship with Copies of the annual and interim reports, the preliminary the auditors. announcement, trading statements, ad hoc announcements and the corporate social responsibility report may also be downloaded PricewaterhouseCoopers SA were re-appointed by the Company’s from the Richemont website. Copies of the statutes of the Company, shareholders at the 2011 AGM as the auditors of the Company’s together with the Corporate Governance Regulations, are also financial statements and the Group’s consolidated financial available on the website. statements. They were appointed for a period of one year and, being eligible, will stand for a further period of office of one year The Group presents its annual and interim results to analysts at this year’s AGM. A questionnaire-based evaluation, in which and major investors each year. The presentations to invited the Finance Director of every subsidiary is consulted, forms the participants take place in Geneva and are simultaneously basis of an annual review of the external auditors’ performance. broadcast over the internet. The slide presentation is downloadable The results of this exercise are reviewed by the Audit Committee. from the website. A replay of the broadcast is available on the Group’s website within 24 hours of the presentation and PricewaterhouseCoopers were initially appointed as auditors a transcript of the presentation shortly thereafter. of the Company and the Group in 1993 (as Coopers & Lybrand). Mr Michael Foley, the lead auditor, assumed that role in Statutory and regulatory announcements are published in September 2011. The Company’s policy is to rotate the lead the Swiss Official Gazette of Commerce and, in certain cases, auditor at least once every seven years. by SIX Swiss Exchange.

52 Richemont Annual Report and Accounts 2012 Corporate governance

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Consolidated financial statements Directors’ Report

The Board of Directors of Compagnie Financière Richemont SA (‘Richemont’ or ‘the Company’) is pleased to submit its report on the activities of the Company and its subsidiaries and associated undertakings (together, ‘the Group’) for the year ended 31 March 2012. The consolidated financial statements on the following pages set out the financial position of the Group at 31 March 2012 and the results and cash flows of its operations for the year then ended. The financial statements of the Company are presented on pages 108 to 111. The agenda for the Annual General Meeting, which is to be held in Geneva on 5 September 2012, is set out on page 116. Further information on the Group’s activities during the year under review is given in the financial review on pages 28 to 33.

Consolidated financial statements Page Page Consolidated statement of financial position 54 25. Trade and other payables 90 Consolidated statement of comprehensive income 55 26. Other operating (expense)/income 90 27. Net profit 90 Consolidated statement of changes in equity 56 28. Employee benefits expense 91 Consolidated statement of cash flows 57 29. Finance costs and income 91 Notes to the consolidated financial statements 58 30. Earnings per share 92 1. General information 58 31. Dividends 93 2. Summary of significant accounting policies 58 32. Cash flow generated from operations 93 3. Financial risk management 64 33. Financial commitments and contingent liabilities 93 4. Risk assessment 67 34. Business combinations 94 5. Critical accounting estimates and judgements 67 35. Related-party transactions 95 6. Segment information 67 36. Share-based payment 103 7. Property, plant and equipment 71 37. Joint ventures 105 8. Goodwill 72 38. Ultimate parent company 105 9. Other intangible assets 73 39. Events after the reporting period 105 10. Investment property 74 40. Principal Group companies 106 11. Investments in associated undertakings 74 Report of the Group auditor 107 12. Taxation 75 13. Financial assets held at fair value through profit or loss 77 14. Other non-current assets 77 Company financial statements 15. Inventories 78 16. Trade and other receivables 78 Compagnie Financière Richemont SA 108 17. Derivative financial instruments 79 Report of the statutory auditor 112 18. Cash and cash equivalents 81 19. Equity 81 20. Borrowings 83 21. Liquidity risk 84 22. Retirement benefit obligations 85 23. Provisions 88 24. Other long-term financial liabilities 89

Richemont Annual Report and Accounts 2012 53 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Consolidated statement of financial position at 31 March

2012 2011 Notes € m € m Assets Non-current assets Property, plant and equipment 7 1 529 1 267 Goodwill 8 479 441 Other intangible assets 9 316 314 Investment property 10 64 – Investments in associated undertakings 11 10 7 Deferred income tax assets 12 443 349 Financial assets held at fair value through profit or loss 13 69 70 Other non-current assets 14 248 211 3 158 2 659 Current assets Inventories 15 3 666 2 789 Trade and other receivables 16 750 597 Derivative financial instruments 17 27 148 Prepayments 116 119 Financial assets held at fair value through profit or loss 13 2 400 2 154 Cash at bank and on hand 18 1 636 1 227 8 595 7 034 Total assets 11 753 9 693

Equity and liabilities Equity attributable to owners of the parent company Share capital 19 334 334 Treasury shares 19 (515) (325) Hedge and share option reserves 19 255 305 Cumulative translation adjustment reserve 1 412 892 Retained earnings 7 123 5 774 8 609 6 980 Non-controlling interest 9 12 Total equity 8 618 6 992

Liabilities Non-current liabilities Borrowings 20 22 120 Deferred income tax liabilities 12 24 35 Retirement benefit obligations 22 33 38 Provisions 23 158 137 Other long-term financial liabilities 24 176 158 413 488 Current liabilities Trade and other payables 25 948 825 Current income tax liabilities 299 260 Borrowings 20 4 1 Derivative financial instruments 17 124 36 Provisions 23 163 126 Accruals and deferred income 358 294 Short-term loans 20 62 101 Bank overdrafts 18 764 570 2 722 2 213 Total liabilities 3 135 2 701 Total equity and liabilities 11 753 9 693

The notes on pages 58 to 106 are an integral part of these consolidated financial statements.

54 Richemont Annual Report and Accounts 2012 Consolidated financial statements

2012 2011 Notes € m € m Sales 6 8 867 6 892 Cost of sales (3 216) (2 498) Gross profit 5 651 4 394 Selling and distribution expenses (1 962) (1 654) Communication expenses (859) (699) Administrative expenses (747) (656) Other operating (expense)/income 26 (43) (30) Operating profit 2 040 1 355 Finance costs 29 (314) (292) Finance income 29 79 111 Share of post-tax results of associated undertakings 11 (1) 101 Profit before taxation 1 804 1 275 Taxation 12 (264) (196) Profit for the year 1 540 1 079

Other comprehensive income: Currency translation adjustments – movement in the year 520 459 – reclassification to profit or loss 1 11 Cash flow hedges – net gains 25 81 – reclassification to profit or loss (108) (13) Tax on cash flow hedges 14 (11) Other comprehensive income, net of tax 452 527 Total comprehensive income 1 992 1 606

Profit attributable to: Owners of the parent company 1 544 1 090 Non-controlling interest (4) (11) 1 540 1 079

Total comprehensive income attributable to: Owners of the parent company 1 995 1 616 Non-controlling interest (3) (10) 1 992 1 606

Earnings per share attributable to owners of the parent company during the year (expressed in € per share) Basic 30 2.816 1.977 Diluted 30 2.756 1.925

The notes on pages 58 to 106 are an integral part of these consolidated financial statements.

Richemont Annual Report and Accounts 2012 55 Consolidated financial statements

Non- controlling Total Equity attributable to owners of the parent company interest equity Hedge Cumulative and share translation Share Treasury option adjustment Retained capital shares reserves reserve earnings Total Notes € m € m € m € m € m € m € m € m Balance at 1 April 2010 334 (248) 194 423 4 956 5 659 2 5 661

Comprehensive income Profit for the year – – – – 1 090 1 090 (11) 1 079 Other comprehensive income – – 57 469 – 526 1 527 – – 57 469 1 090 1 616 (10) 1 606

Transactions with owners of the parent company recognised directly in equity Net changes in treasury shares 19 – (77) – – (2) (79) – (79) Employee share option plan 19 – – 30 – – 30 – 30 Tax on share option plan 19 – – 24 – – 24 – 24 Dividends paid 31 – – – – (141) (141) – (141) Initial recognition of put options over non-controlling interests – – – – (129) (129) – (129) – (77) 54 – (272) (295) – (295)

Non-controlling interest in business combinations – – – – – – 20 20

Balance at 31 March 2011 334 (325) 305 892 5 774 6 980 12 6 992

Comprehensive income Profit for the year – – – – 1 544 1 544 (4) 1 540 Other comprehensive income – – (69) 520 – 451 1 452 – – (69) 520 1 544 1 995 (3) 1 992

Transactions with owners of the parent company recognised directly in equity Net changes in treasury shares 19 – (190) – – 9 (181) – (181) Employee share option plan 19 – – 24 – – 24 – 24 Tax on share option plan 19 – – (5) – – (5) – (5) Dividends paid 31 – – – – (204) (204) – (204) – (190) 19 – (195) (366) – (366)

Balance at 31 March 2012 334 (515) 255 1 412 7 123 8 609 9 8 618

The notes on pages 58 to 106 are an integral part of these consolidated financial statements.

56 Richemont Annual Report and Accounts 2012 Consolidated financial statements

2012 2011 Notes € m € m Cash flows from operating activities Cash flow generated from operations 32 1 789 1 696 Interest received 30 17 Interest paid (23) (22) Other investment income 3 4 Taxation paid (317) (202) Net cash generated from operating activities 1 482 1 493

Cash flows from investing activities Proceeds from disposal of subsidiary undertakings and other businesses, net of cash disposed – (3) Acquisition of subsidiary undertakings and other businesses, net of cash acquired 34 (3) (246) Acquisition of associated undertakings (1) – Acquisition of property, plant and equipment (421) (285) Proceeds from disposal of property, plant and equipment 23 3 Acquisition of intangible assets (61) (41) Proceeds from disposal of intangible assets 1 – Acquisition of investment property (53) – Investment in money market and government bond funds (694) (2 284) Proceeds from disposal of money market and government bond funds 448 1 489 Acquisition of other non-current assets (42) (22) Proceeds from disposal of other non-current assets 24 32 Net cash used in investing activities (779) (1 357)

Cash flows from financing activities Proceeds from borrowings 26 81 Repayment of borrowings (172) (270) Dividends paid (204) (141) Payment for treasury shares (268) (112) Proceeds from sale of treasury shares 89 28 Capital element of finance lease payments (1) (2) Net cash used in financing activities (530) (416)

Net change in cash and cash equivalents 173 (280) Cash and cash equivalents at the beginning of the year 657 940 Exchange gains/(losses) on cash and cash equivalents 42 (3) Cash and cash equivalents at the end of the year 18 872 657

The notes on pages 58 to 106 are an integral part of these consolidated financial statements.

Richemont Annual Report and Accounts 2012 57 Consolidated financial statements

1. General information Uniform accounting policies have been adopted. Compagnie Financière Richemont SA (‘the Company’) and its Subsidiary undertakings are defined as those undertakings that are subsidiaries (together ‘Richemont’ or ‘the Group’) is one of the world’s controlled by the Group. Control of an undertaking most commonly leading luxury goods groups. The Group’s luxury goods interests exists when the Company holds, directly or indirectly through other encompass several of the most prestigious names in the industry subsidiary undertakings, more than 50 % of the ordinary share capital including Cartier, Van Cleef & Arpels, Piaget, A. Lange & Söhne, and voting rights of the undertaking. The accounts of subsidiary Jaeger-LeCoultre, Vacheron Constantin, Officine Panerai, IWC, undertakings are drawn up at 31 March of each year. In consolidating Baume & Mercier, Roger Dubuis, Montblanc, Alfred Dunhill, the financial statements of subsidiary undertakings, intra-Group Lancel, Chloé, Azzedine Alaïa and Net-a-Porter. transactions, balances and unrealised gains and losses are eliminated. The Company is registered in Bellevue, Geneva, Switzerland. Shares The Group is a limited partner in a property fund. The Group is also of the Company are listed and traded on SIX Swiss Exchange and the general partner and property manager of the fund. As a general are included in the Swiss Market Index (‘SMI’) of leading stocks. partner, the Group has full power and authority to carry on all activities Depository Receipts in respect of Richemont shares are traded on which it considers necessary or desirable to the operation of the the Johannesburg stock exchange operated by JSE Limited. partnership. It is considered that the Group controls the property fund. These consolidated financial statements have been approved for The Group applies the acquisition method to account for business issue by the Board of Directors of the Company (‘the Board’) on combinations. The cost of an acquisition is measured at the fair value 15 May 2012 and are subject to approval at the shareholders’ general of the assets transferred, equity instruments issued and liabilities meeting on 5 September 2012. incurred at the date of exchange, plus the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities 2. Summary of significant accounting policies assumed in a business combination are measured initially at their fair 2.1. Basis of preparation values at the acquisition date. On an acquisition by acquisition basis, These consolidated financial statements of the Company have been the Group recognises any non-controlling interest in the acquiree prepared in accordance with International Financial Reporting either at fair value or at the non-controlling interest’s proportionate Standards and International Accounting Standards issued or adopted share of the acquiree’s net assets. The excess of the cost of acquisition, by the International Accounting Standards Board (‘IASB’) and in the amount of any non-controlling interest in the acquiree and the accordance with interpretations issued or adopted by the International acquisition date fair value of any previous equity interest in the Financial Reporting Interpretations Committee (‘IFRIC’), acquiree over the fair value of the Group’s share of the identifiable (together ‘IFRS’). net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, These consolidated financial statements have been prepared under the the difference is recognised directly in the profit or loss for the period. historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair Any contingent consideration is measured at fair value at the value through profit or loss. acquisition date. Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Contingent consideration The policies set out below have been consistently applied to the that is classified as equity is not re-measured and subsequent settlement periods presented unless otherwise stated. is accounted for within equity. There are no new accounting standards or interpretations that are Acquisition related costs are expensed in the period in which they effective for the first time for this financial year that would be are incurred. expected to have a material impact on the Group. Associated undertakings are defined as those undertakings, not 2.2. Basis of consolidation classified as subsidiary undertakings, where the Group is able to The consolidated financial statements include the accounts of the exercise a significant influence. Significant influence is presumed to Company and its subsidiary undertakings together with the Group’s exist where the Group holds between 20 % and 50 % of the voting share of the results and retained post-acquisition reserves of associated rights of another entity. Associated undertakings are accounted for undertakings and joint ventures. under the equity method. The attributable results of subsidiary undertakings are included in the Unrealised gains on transactions between the Group and its associated consolidated financial statements from the date control commences undertakings are eliminated to the extent of the Group’s interest in the until the date control ceases. The Group’s share of profit or loss and associated undertaking. Unrealised losses are eliminated unless the other comprehensive income of associated undertakings and joint transaction provides evidence of an impairment of the asset transferred. ventures are included from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

58 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 The Group’s share of its associated undertakings’ movements in other Goodwill and fair value adjustments arising on the acquisition of a comprehensive income is recognised in other comprehensive income. foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate. Joint ventures are enterprises that are jointly controlled by the Group and one or more other parties in accordance with contractual 2.5. Property, plant and equipment arrangements between the parties. The Group’s interests in jointly Land and buildings comprise mainly factories, retail boutiques controlled entities are accounted for by proportionate consolidation. and offices. Under this method the Group includes its share of the joint ventures’ All property, plant and equipment is shown at cost less subsequent income and expenses, assets and liabilities and cash flows in the depreciation and impairment, except for owned land, which is shown relevant components of the consolidated financial statements. at cost less impairment. Cost includes expenditure that is directly Transactions with non-controlling interests that do not result in a loss attributable to the acquisition of the items, together with the estimated of control are accounted for as equity transactions. Gains or losses on cost of the Group’s obligation to remove an asset or restore a site, disposals to non-controlling interests are also recorded in equity. when such costs can be reliably estimated and the likelihood of having to satisfy the obligation is probable. 2.3. Segment reporting Details on the Group’s operating segments can be found under note 6. Subsequent costs are included in the asset’s carrying amount or Operating segments are reported in a manner consistent with the recognised as a separate asset, as appropriate, only when it is probable internal reporting provided to the chief operating decision maker. that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other Operating segments are aggregated into reportable segments only repair and maintenance costs are charged to profit or loss during the if they have similar economic characteristics, and are similar in each financial period in which they are incurred. of the following: nature of products; distribution method; and long-term margin. Depreciation on property, plant and equipment is calculated using the straight-line method to allocate the cost of each asset to its residual 2.4. Foreign currency translation value over its estimated useful life, up to the following limits: (a) Functional and presentation currency Items included in the financial statements of each of the Group’s • Buildings 50 years entities are measured using the currency of the primary economic • Plant and machinery 20 years environment in which the entity operates (the ‘functional currency’). • Fixtures, fittings, tools and equipment 15 years The functional currency of the Company is Swiss francs. The Assets under construction are not depreciated. Land acquired under consolidated financial statements are presented in millions of euros finance lease arrangements is depreciated to its residual value over (the ‘presentation currency’). Management believes that this currency the lease term. All other land is not depreciated. is more useful to the users of the consolidated financial statements. The assets’ residual values and useful lives are reviewed annually, (b) Transactions and balances and adjusted if appropriate. Foreign currency transactions are translated into the functional currency using the average exchange rates prevailing during the Gains and losses on disposals, calculated as the difference between period. The average rates approximate actual rates at the transaction the net proceeds from disposals and the carrying amounts, are included dates. Foreign exchange gains and losses resulting from the settlement in profit or loss. Borrowing costs incurred for the construction of of such transactions and from the translation at the year-end exchange any qualifying assets are capitalised during the period of time that rates of monetary assets and liabilities denominated in foreign is required to complete and prepare the asset for its intended use. currencies are recognised in profit or loss. Other borrowing costs are expensed. (c) Subsidiary and associated undertakings 2.6. Goodwill and other intangible assets The assets and liabilities of foreign operations that have a functional (a) Goodwill currency different from the presentation currency are translated to Goodwill represents the excess of the cost of an acquisition over the euro at the closing exchange rates at the reporting date. fair value of the Group’s share of the identifiable net assets of the acquired subsidiary or associate at the date of acquisition. The income and expenses of foreign operations are translated to euro at the average exchange rates. Goodwill arising on acquisition of subsidiaries is recognised separately. Goodwill on acquisition of associated undertakings is included in the All resulting foreign exchange differences are recognised in other carrying value of the investment in the associated company. comprehensive income. Goodwill arising from subsidiaries is tested annually for impairment Exchange differences arising from the translation of the net and carried at cost less accumulated impairment losses. Gains and investment in foreign entities are recognised in other comprehensive losses on the disposal of a subsidiary include the carrying amount income. When a foreign operation is sold, such exchange differences of goodwill relating to the entity sold. are recognised in profit or loss as part of the gain or loss on disposal.

Richemont Annual Report and Accounts 2012 59 Consolidated financial statements

Goodwill is allocated to cash-generating units for the purpose of Investment property is initially measured at cost. Cost includes impairment testing. An allocation is made to the cash-generating units expenditure that is directly attributable to the acquisition of the or groups of cash-generating units that are expected to benefit from investment property. Subsequent measurement is in accordance with the the business combination in which the goodwill arose, subject to an Group policy for Property, plant and equipment; see note 2.5 above. operating segment ceiling. The investment property acquired in the year is undergoing renovation (b) Computer software and related licences at 31 March 2012 and is not ready for its intended use. As such no Costs that are directly associated with developing, implementing or depreciation has yet been provided for. improving identifiable software products having an expected benefit It is considered that the residual value after renovation will exceed beyond one year are recognised as other intangible assets and amortised the book value so that depreciation will not be required. using the straight-line method over their useful lives, not exceeding a period of 5 years. Licences are amortised over their contractual lives Income from investment property and related operating costs are to a maximum period of 15 years. Costs associated with evaluating included within administrative expenses. or maintaining computer software are expensed as incurred. 2.8. Impairment of non-financial assets (c) Research and development, patents and trademarks Intangible assets that have an indefinite useful life are not subject to Research expenditures are recognised as an expense as incurred. amortisation and are tested annually for impairment. The Group has Costs incurred on development projects are recognised as other identified goodwill as the only category of intangible asset with an intangible assets when it is probable that the project will be a success, indefinite life. All other non-financial assets are tested for impairment considering its commercial and technological feasibility, and costs can whenever events or changes in circumstance indicate that the carrying be measured reliably. Other development expenditures are recognised amount may not be fully recoverable. as an expense as incurred. Development costs previously recognised An impairment loss is recognised for the amount by which an asset’s as an expense are not recognised as an asset in a subsequent period. carrying amount exceeds its recoverable amount. The recoverable Development costs that have a finite useful life and that have been amount is the higher of an asset’s fair value, less costs to sell, and its capitalised are amortised from the commencement of commercial value in use. For the purposes of assessing impairment, assets are production of the product on the straight-line method over the period grouped at the lowest levels for which there are separately identifiable of its expected benefit not exceeding 10 years. cash flows. Separately acquired patents and trademarks are recognised at cost. 2.9. Other financial asset investments Those acquired in a business combination are recognised at fair value The Group classifies its investments in the following categories: at the acquisition date. Amortisation is calculated using the straight- financial assets held at fair value through profit or loss and loans and line method to allocate the cost of each asset over its estimated useful receivables. The classification depends on the purpose for which the life up to the limit of 50 years. investment was acquired. Management determines the classification (d) Leasehold rights and distribution rights of its investments at initial recognition. Premiums paid to parties other than the lessor at the inception of (a) Financial assets held at fair value through profit or loss operating leases for leasehold buildings are capitalised and amortised This category has two sub-categories: financial assets held for trading; over their expected useful lives or, if shorter, the lease period. Useful and those designated at fair value through profit or loss at initial lives do not exceed 20 years. recognition. A financial asset is classified in this category if acquired Distribution rights are shown at cost less subsequent amortisation principally for the purpose of selling in the short term or if so and impairment. Those acquired in a business combination are designated by management. Derivatives are categorised as held for initially recognised at fair value at the acquisition date. Amortisation trading. Assets in this category are classified as current if they are is calculated on a straight-line basis over the estimated useful life to either held for trading or are expected to be realised within the next the limit of 5 years. twelve months. 2.7. Investment property Purchases and sales of these financial assets are recognised on the Investment property consists of land and buildings held to earn rental transaction date. They are initially recognised at cost excluding income or for capital appreciation, or both, and not for use in the transaction costs, which represents fair value. Fair value adjustments production or supply of goods or services or for administrative purposes. are included in profit or loss in the period in which they arise. Where an insignificant portion of the whole property is for own use Financial assets are de-recognised when the rights to receive cash the entire property is recognised as an investment property, otherwise flows from the investments have expired or have been transferred the property is recognised within Property, plant and equipment. and the Group has transferred substantially all risk and rewards of ownership.

60 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 (b) Loans and receivables 2.15. Borrowings Loans and receivables are non-derivative financial assets held with no Borrowings are recognised initially at fair value, net of transaction intention of trading and which have fixed or determinable payments costs incurred. Borrowings are subsequently stated at amortised cost; that are not quoted in an active market. They are included in trade and any difference between the proceeds (net of transaction costs) and the other receivables within current assets, except for maturities greater redemption value is recognised in profit or loss over the period of the than twelve months which are classified as other non-current assets. borrowings using the effective interest method. 2.10. Other non-current assets Borrowings are classified as current liabilities unless the Group has The Group holds a collection of jewellery and watch pieces primarily an unconditional right to defer settlement of the liability for at least for presentation purposes to promote the Maisons and their history. twelve months after the reporting date. They are not intended for sale. Maisons’ collection pieces are held as 2.16. Current and deferred income tax non-current assets at depreciated cost less any impairment in value. The tax expense comprises current and deferred tax. The residual values of such pieces are generally equal to or in excess of cost. Current and deferred tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other 2.11. Inventories comprehensive income. In such cases the tax is also recognised Inventories are stated at the lower of cost and net realisable value. Net directly in equity or in other comprehensive income. realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined Current tax is the expected tax payable or receivable on the taxable using either a weighted average or specific identification basis depending income or loss for the year using tax rates enacted or substantively on the nature of the inventory. The cost of finished goods and work in enacted at the reporting date, and any adjustment to tax payable in progress comprises raw materials, direct labour, related production respect of previous years. overheads and, where applicable, duties and taxes. It excludes Deferred income tax is provided using the liability method, on borrowing costs. temporary differences arising between the tax bases of assets and 2.12. Trade and other receivables liabilities and their carrying amounts in the consolidated financial Trade and other receivables are recognised initially at fair value and statements. Deferred income tax is not accounted for if it arises from subsequently measured at amortised cost using the effective interest initial recognition of an asset or liability in a transaction, other than method, less provision for impairment. A provision for impairment a business combination, that at the time of the transaction affects of trade receivables is established when there is objective evidence that neither accounting nor taxable profit or loss. Deferred income tax the Group will not be able to collect all amounts due according to the is determined using tax rates (and laws) that have been enacted or original terms of the receivables. The amount of the provision is the substantively enacted by the reporting date and are expected to apply difference between the asset’s carrying amount and the present value when the related deferred income tax asset is realised or the deferred of estimated future cash flows, discounted at the effective interest rate. income tax liability is settled. The movement of the provision is recognised in profit or loss for Deferred income tax assets are recognised to the extent that it is the period. probable that future taxable profit will be available against which the 2.13. Cash and cash equivalents temporary differences and the carry forward of unused tax losses can Cash and cash equivalents includes cash on hand, deposits held at call be utilised. with banks, other short-term highly liquid investments with original Deferred income tax is provided on temporary differences arising maturities of three months or less and bank overdrafts. on investments in subsidiaries, joint ventures and associates, except 2.14. Equity where the Group controls the timing of the reversal of the temporary (a) Share capital difference and it is probable that the temporary difference will not Ordinary shares are classified as equity. Incremental costs directly reverse in the foreseeable future. attributable to the issue of new shares are recognised as a deduction Deferred income tax assets and liabilities are offset where there is a from equity, net of any tax effects. legally enforceable right to offset current tax assets against current tax (b) Treasury shares liabilities and when the deferred income tax assets and liabilities relate All consideration paid by the Group in the acquisition of treasury to income taxes levied by the same taxation authority on the same shares and received by the Group on the disposal of treasury shares is taxable entity or on different tax entities where there is an intention recognised directly in shareholders’ equity. The cost of treasury shares to settle the balances on a net basis. held at each reporting date is deducted from shareholders’ equity. In determining the amount of current and deferred tax the Group Gains or losses arising on the disposal of treasury shares are recognised takes into account the impact of uncertain tax positions and whether within retained earnings directly in shareholders’ equity. additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.

Richemont Annual Report and Accounts 2012 61 Consolidated financial statements

2.17. Employee benefits (c) Incentive plans (a) Retirement benefit obligations The Group recognises a liability and an expense for incentive plans The Group operates a number of defined benefit and defined where contractually obliged or where there is a past practice that has contribution post-employment benefit plans throughout the world. created a constructive obligation. The plans are generally funded through payments to trustee- (d) Share-based payment administered funds by both employees and relevant Group companies The Group operates an equity-settled share-based compensation plan taking into account periodic actuarial calculations. A defined benefit based on options granted in respect of Richemont shares. The fair plan is a pension plan that defines an amount of pension benefit that value of the employee services received in exchange for the grant of an employee will receive post-employment, usually dependent on one options is recognised as an expense. The total amount to be expensed or more factors such as age, years of service and compensation. over the vesting period is determined by reference to the fair value The liability recognised in the statement of financial position in of the options granted, excluding the impact of any non-market respect of defined benefit plans is the present value of the defined vesting conditions. Non-market vesting conditions are included in benefit obligations at the reporting date less the fair values of plan assumptions about the number of options that are expected to become assets, together with adjustments for unrecognised actuarial gains exercisable. At each reporting date, the Group revises its estimate of or losses, past service costs and limits on the assets recognisable. The the number of options that are expected to vest. It recognises the defined benefit obligations are calculated on a regular cyclical basis impact of the revision of original estimates, if any, in profit or loss by independent actuaries using the projected unit credit method. over the remaining vesting period and a corresponding adjustment The present value of the defined benefit obligation is determined to equity. by discounting the estimated future cash outflows using the yields The Group also operates a cash-settled share-based compensation available at reporting dates on high-quality corporate or government plan based on options granted over the shares of subsidiary entities. bonds (in countries with no deep corporate bond market) that are The fair value of the estimated amount payable is determined using denominated in the currency in which the benefits will be paid, and a pricing model, taking into account the terms and conditions of the that have terms to maturity consistent with the terms of the related issued instrument, and is expensed on a straight-line basis over the pension liability. vesting period. The fair value is re-measured at each reporting date Past service costs are recognised immediately in profit or loss, unless with changes being recognised in profit or loss. the changes to the pension plan are conditional on the employees 2.18. Provisions remaining in service for a specified period of time (‘the vesting Provisions for restructuring costs, legal claims and other liabilities period’). In this case, the past service costs are amortised on the are recognised when: the Group has a present legal or constructive straight-line method over the vesting period. obligation as a result of past events; it is more likely than not that an Actuarial gains and losses in excess of the greater of 10 % of the value outflow of resources will be required to settle the obligation; and the of plan assets or 10 % of the defined benefit obligations are charged amount has been reliably estimated. Restructuring and property or credited to profit or loss over the expected average remaining related provisions include lease termination penalties and employee service lives of employees. termination payments. Provisions are not recognised for future operating losses. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a Where there are a number of similar obligations, the likelihood that mandatory, contractual or voluntary basis. The Group has no further an outflow will be required in settlement is determined by considering payment obligations once the contributions have been paid. The the class of obligations as a whole. A provision is recognised even if contributions are recognised as an employee benefit expense when they the likelihood of an outflow with respect to any one item included in are due. Prepaid contributions are recognised as an asset to the extent the same class of obligations may be small. that a cash refund or a reduction in the future payments is available. Provisions are measured at the present value at the reporting date of (b) Termination benefits management’s best estimate of the expenditure required to settle the Termination benefits are payable when employment is terminated obligation. The pre-tax discount rate used to determine the present before the normal retirement date, or when an employee accepts value reflects current market assessments of the time value of money voluntary redundancy in exchange for these benefits. The Group and the risk specific to the liability. Any increase in provisions due recognises termination benefits when it is demonstrably committed to to the passage of time is recognised as interest expense. either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

62 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 2.19. Revenue recognition 2.22. Dividend distributions (a) Goods Dividend distributions to Richemont shareholders are recognised Sales revenue comprises the fair value of the sale of goods, net of as a liability in the Group’s consolidated financial statements in the value-added tax, duties, other sales taxes, rebates and trade discounts period in which the dividends are approved by the shareholders of and after eliminating sales within the Group. Revenue is recognised the Company. when significant risks and rewards of ownership of the goods are 2.23. New standards and interpretations not yet adopted transferred to the buyer. Where there is a practice of agreeing to Certain new accounting standards, amendments to standards issued customer returns, accumulated experience is used to estimate and by the IASB and interpretations issued by IFRIC are not yet effective provide for such returns at the time of sale. for the year ended 31 March 2012. (b) Interest income IAS 19, Employee benefits was amended in June 2011. The significant Interest income is recognised on a time-proportion basis using the changes are: to eliminate the corridor approach and require all effective interest method. actuarial gains and losses to be recognised through other comprehensive (c) Royalty income income as incurred; to replace the estimated return on plan asset with Royalty income is recognised on the accruals basis in accordance a net interest amount determined by applying the discount rate to with the substance of the relevant agreements. the net benefit asset / liability; and to recognise all past service costs immediately. The Group has yet to assess the full impact of the (d) Dividend income amendments, however it is estimated these would include an increase Dividend income is recognised when the right to receive payment in the recognised pension liability of an amount similar to the is established. unrecognised actuarial losses. 2.20. Leases IFRS 9, Financial instruments is mandatory for the Group’s 2016 (a) Operating leases reporting and could change the classification and measurement of Payments made under operating leases (net of any incentives received) financial assets and financial liabilities. are charged to profit or loss using the straight-line method over the lease term. Sub-lease income (net of any incentives given) is credited to IFRS 10, Consolidated financial statements, builds on the existing profit or loss using the straight-line method over the sub-lease term. principles of identifying the ‘control’ in determining whether an entity is included in the consolidated financial statements of the parent. The (b) Finance leases new requirements will be adopted no later than the period beginning At commencement of the lease term, assets and liabilities are 1 April 2013. recognised at the lower of the present value of future minimum lease payments and fair value of the leased item. In cases where land and IFRS 11, Joint Arrangements was introduced in May 2011, replacing buildings are acquired under finance leases, separate values of the IAS 31, Interests in joint ventures. The Group has yet to assess the land and buildings are established. All property, plant and equipment full impact of the new standard, which prohibits the Group’s current so recognised is depreciated over the shorter of the asset’s expected policy of proportional consolidation and requires the application of useful life or the lease term. the equity accounting method for joint ventures. The Group will comply with the new requirements when the standard is first adopted 2.21. Non-current assets held for sale and discontinued operations which will be no later than the period beginning 1 April 2013. Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through IFRS 12, Disclosure of interests in other entities, requires disclosure a sale transaction and a sale is considered highly probable. They are of quantitative and qualitative information on the Group’s investments stated at the lower of carrying amount and fair value less costs to sell in other entities, including: subsidiaries; joint arrangements; associates; if their carrying amount is to be recovered principally through a sale or unconsolidated structured entities. The Group will comply with the transaction rather than through continuing use. new disclosure requirements when the standard is first adopted which will be no later than the period beginning 1 April 2013. A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of IFRS 13, Fair value measurement provides a single source definition operations that has been disposed of or is held for sale, or is a and a framework for measuring fair value. The Group will consider subsidiary acquired exclusively with a view to resale. Classification as the guidance on measuring fair value for the accounting period a discontinued operation occurs upon disposal or when the operation beginning 1 April 2013. meets the criteria to be classified as held for sale, if earlier. When an There are no other new or amended standards or interpretations that operation is classified as a discontinued operation the statement of would be expected to have a material impact for the Group. comprehensive income is re-presented as if the discontinued operation had been discontinued from the start of the comparative period.

Richemont Annual Report and Accounts 2012 63 Consolidated financial statements

Other 3. Financial risk management comprehensive Change in rate income Profit or loss 3.1. Financial risk factors 2012 2011 2012 2011 2012 2011 The Group’s activities expose it to a variety of financial risks: market % % € m € m € m € m risk (including foreign exchange risk, price risk, cash flow and fair USD strengthening vs CHF 17 % 12 % – (18) (83) (35) value interest rate risk); credit risk; and liquidity risk. The Group’s JPY strengthening vs CHF 16 % 14 % – (16) (44) (11) overall risk management programme focuses on the unpredictability HKD strengthening vs CHF 17 % 12 % – (42) (203) (20) of financial markets and seeks to minimise potential adverse effects on HKD strengthening vs EUR 11 % 12 % – – (20) (25) the Group’s financial performance. The Group uses derivative financial JPY strengthening vs EUR 13 % 16 % – – (15) (21) instruments to hedge certain risk exposures. USD strengthening vs EUR 12 % 12 % – – (21) (44) Financial risk management is carried out by a central treasury CHF strengthening vs EUR 15 % 10 % – – (348) (260) department (‘Group Treasury’) under policies approved by the Board. CNY* strengthening vs CHF 17 % 12 % – – (72) – Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board has * Chinese yuan/renminbi approved formal written principles for overall risk management, Other comprehensive as well as written policies covering specific areas, such as foreign Change in rate income Profit or loss exchange risk, interest rate risk, credit risk, use of derivative and 2012 2011 2012 2011 2012 2011 non-derivative financial instruments, and investing excess liquidity. % % € m € m € m € m USD weakening vs CHF 17 % 12 % – 14 63 33 (a)(i) Market risk: Foreign exchange risk JPY weakening vs CHF 16 % 14 % – 12 31 8 The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with HKD weakening vs CHF 17 % 12 % – 33 145 16 respect to the Swiss franc, US dollar, HK dollar, Chinese yuan and HKD weakening vs EUR 11 % 12 % – – 13 13 Japanese yen. Foreign exchange risk arises from future commercial JPY weakening vs EUR 13 % 16 % – – 9 10 transactions, recognised assets and liabilities and net investments in USD weakening vs EUR 12 % 12 % – – 15 35 foreign operations. CHF weakening vs EUR 15 % 10 % – – 347 260 CNY* weakening vs CHF 17 % 12 % – – 51 – Foreign exchange risk arises when recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. * Chinese yuan/renminbi Group Treasury undertakes the management of the net position in (a)(ii) Market risk: Price risk each foreign currency by using external currency derivatives. The Group is exposed to commodity price risk, marketable securities’ The Group’s financial risk management policy is to hedge up to price risk and other price risk. 70 % of anticipated net cash flow exposure arising in US dollars, • Commodity price risk HK dollars, Chinese yuan and Japanese yen for the subsequent The Group is exposed to price risk related to anticipated purchases of twelve months. certain commodities, namely precious metals and stones for use in its The Group has certain investments in foreign operations, whose net manufacturing processes. There is no financial risk as the commodities assets are exposed to foreign currency translation risk. Currency are for use as raw materials by the Group’s businesses. A change in exposure arising from these net assets of the Group’s foreign operations those prices may alter the gross margin of specific businesses. is managed primarily through borrowings denominated in the • Marketable securities’ price risk relevant foreign currencies. The Group is exposed to marketable securities’ price risk relating to: The sensitivity analysis presented in the following tables shows the its investments in listed equities and related obligations to executives pre–tax increase/(decrease) in other comprehensive income and profit in respect of options granted over shares in listed equities; unlisted or loss that would result from the noted percentage change in listed equities; and investments in AAA rated money market and government exchange rates, all other factors remaining constant. These arise bond funds. These are classified in the consolidated statement of principally from the re-pricing of derivative contracts and the financial position as financial assets and liabilities held at fair value re-translation impact of euro-denominated investments in money through profit or loss. market and government bond funds held in an entity with a Swiss At 31 March 2012 the Group held a number of listed investments franc functional currency. The analysis is performed on the same with a total market value of € 65 million (2011: € 66 million). These basis as for 2011. investments are primarily listed in the UK and Luxembourg. Movements of plus/(minus) 18 % and 40 % based on the one-year historic volatilities for the UK and Luxembourg listed equities respectively, all other variables held constant, would have had a pre-tax impact of plus/(minus) € 14 million (2011: movement plus/(minus) 19 % and 35 % based on the one-year UK and Luxembourg listed equities volatilities; profit before tax impact plus/(minus) € 14 million).

64 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 The Group has recognised liabilities in respect of options granted to (b) Credit risk executives over shares in equities listed in the UK and Luxembourg. The Group has no significant concentrations of credit risk. It has Movements of plus/(minus) 18 % and 40 % based on the one-year policies in place to ensure that sales of products are made to customers historic volatilities of the UK and Luxembourg equity-based options with an appropriate credit history. The minimum credit rating respectively, all other variables held constant, would have had an requirements of derivative counterparties are a long-term credit impact on profit before tax of minus € 13 million, plus € 12 million rating of A2/A- and the minimum credit rating requirements of (2011: movements plus/(minus) 19 % and 35 % based on the one-year deposit counterparties are a short-term credit rating of P-1/A-1. UK and Luxembourg equities volatilities; profit before tax impact At 31 March 2012 the Group had € 2 400 million invested in AAA minus € 14 million, plus € 13 million). rated euro-denominated money market and government bond funds (2011: € 2 154 million) and € 1 636 million held as cash at bank At 31 March 2012 and 2011 the Group held a number of investments (2011: € 1 227 million). in AAA rated money market and government bond funds. The price risk associated with these investments is considered to be minimal, (c) Liquidity risk due to the high credit quality of the underlying investments. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through The Group also holds a portfolio of unlisted equities primarily an adequate level of committed credit facilities and the ability to close acquired through capital injection with a view to future business out market positions. Due to the dynamic nature of the underlying development. These investments are recorded at fair value through businesses, Group Treasury aims to maintain flexibility in funding profit or loss using valuation techniques. The Group actively monitors by keeping committed credit lines available. the performance of these investments, but is ultimately exposed to their underperformance. Local liquidity is ensured by maintaining local bank credit facilities and by funding the excess funding requirements by the Group overlay • Other price risk cash pool. The Group is exposed to price risk related to put options written over the equity shares of subsidiary entities held by non-controlling See note 21 for further disclosure on liquidity risk. interests. The value of the put options initially recognised through 3.2. Accounting for derivative financial instruments and hedging equity with subsequent changes being recognised through profit or activities loss, is determined using accepted company valuation techniques. Derivatives are initially recognised at fair value on the date a After consideration of all relevant factors available, management’s derivative contract is entered into and are subsequently re-measured valuations of the put option liabilities have been updated where at their fair value. differences in actual results to original forecasts have required a A significant portion of projected sales in each major currency change in certain accounting estimates, resulting in a decrease in the qualifies as ‘highly probable’ forecast transactions for hedge put option liabilities of € 43 million with a corresponding credit to accounting purposes. Certain derivative financial instruments with a finance income. trade date prior to 1 April 2011 were designated as hedge instruments A movement of plus/(minus) 25 % in the projected EBITDA of of highly probable forecast transactions. the subsidiary entities would have a pre-tax profit impact of (minus)/ The application of hedge accounting results in the effective portion of plus € 40 million. A movement of plus/(minus) 100 basis points on the changes in the fair value of derivatives, that are designated and qualify weighted average cost of capital would have had a pre-tax impact as cash flow hedges, being deferred in equity and recycled to profit of plus € 12 million and minus € 14 million, all other variables or loss in the periods when the hedged item will affect profit or loss kept constant. (for example, when the forecast transaction that is hedged takes (a)(iii) Market risk: Interest rate risk place). The recycle is recognised in cost of sales. The Group has limited fair value interest rate risk in view of the Management has decided to cease the application of hedge accounting variable rate nature of its long-term borrowings. from 1 April 2011. The accounting requirement to recycle from equity The cash flow risk associated with net cash is such that an increase/ when the hedged item impacts profit or loss results, on average, in a (decrease) of 100 basis points in interest rates at the reporting date five-month time delay between the derivative instrument closing and would have impacted profit for the year by plus/(minus) € 32 million the recycle, which results in an accounting timing mismatch. (2011: plus/(minus) € 26 million), all other variables remaining All designated hedging instruments outstanding at 31 March 2011 constant. The analysis is performed on the same basis as for 2011. were fully effective and de-designated during the year when the hedged forecast transaction occurred.

Richemont Annual Report and Accounts 2012 65 Consolidated financial statements

From 1 April 2011 all new derivative instruments are accounted for Level 1 Level 2 Level 3 Total 31 March 2012 € m € m € m € m at fair value with changes in value being recognised immediately as finance costs and income. These trading derivatives are classified as Listed investments 65 – – 65 current assets or liabilities. Unlisted investments – – 4 4 Investment in money market € In the period to date, 98 million of mark-to-market losses in respect and government bond funds – 2 400 – 2 400 of hedging activities have been recognised in net finance costs. Had Derivative financial assets – 27 – 27 hedge accounting continued, € 26 million of this amount would have 65 2 427 4 2 496 been deferred in equity.

The fair values of various derivative instruments are disclosed in note 17. Derivative financial liabilities – (124) – (124) 3.3. Fair value estimation – (124) – (124) The fair value of financial instruments traded in active markets (such Level 1 Level 2 Level 3 Total as publicly traded derivatives) is based on quoted market prices at the 31 March 2011 € m € m € m € m reporting date. The quoted market price for financial assets held by Listed investments 66 – – 66 the Group is the current bid price; the appropriate quoted market Unlisted investments – – 4 4 price for financial liabilities is the current ask price. Investment in money market The fair value of financial instruments that are not traded in an active and government bond funds – 2 154 – 2 154 market is determined by using valuation techniques. The Group uses a Derivative financial assets – 148 – 148 variety of methods and makes assumptions that are based on market 66 2 302 4 2 372 conditions existing at each reporting date. Specific valuation techniques used to value financial instruments include: Derivative financial liabilities – (36) – (36) – (36) – (36) • quoted market prices or dealer quotes for similar instruments; • the fair value of interest rate swaps is calculated as the present value The following table presents the changes in Level 3 instruments. of the estimated future cash flows; Unlisted investments Total • the fair value of forward foreign exchange contracts is determined € m € m using forward exchange market rates at the reporting date; and Balance 1 April 2010 5 5 • other techniques, such as estimated discounted cash flows, are used Losses recognised in profit or loss (1) (1) to determine fair value for the remaining financial instruments. Balance at 31 March 2011 4 4 Losses recognised in profit or loss – – The nominal values less estimated credit adjustments of trade receivables are assumed to approximate their fair values. The fair Balance at 31 March 2012 4 4 value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market The amounts recognised in net finance costs for assets held at € interest rate that is available to the Group for similar financial 31 March 2012 were insignificant (2011: 1 million). instruments. 3.4. Capital risk management The table below analyses financial instruments carried at fair value The Board’s policy is to maintain a strong capital base so as to by valuation method. maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return • Level 1: quoted prices (unadjusted) in active markets for identical of capital to shareholders which the Group defines as total equity assets or liabilities. excluding non-controlling interests and the level of dividends to • Level 2: inputs other than quoted prices included within Level 1 ordinary shareholders. that are observable for the asset or liability, either directly (that is, From time to time the Group will approve special dividends. These as prices) or indirectly (that is, derived from prices). distribute to shareholders exceptional non-recurring profits and • Level 3: inputs for the asset or liability that are not based on cash flows. observable market data (unobservable inputs). The Board seeks to maintain a balance between business returns and a secure capital position. The Group’s target is to achieve a return on shareholders’ equity, excluding share buy-backs, in excess of 15 %.

There were no changes in the Group’s approach during the year. The Group is not subject to any externally imposed capital requirements.

66 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 4. Risk assessment (d) Valuation of put option liabilities over non-controlling interests The Group has written put options over the equity shares of subsidiary The Company has a risk management process which gives entities held by non-controlling interests. The value of the put options consideration to both strategic and operational risks. All identified initially recognised through equity with subsequent changes being risks are quantified according to their probability of occurrence and recognised through profit or loss, is determined using accepted potential impact, and subsequently prioritised by Group Management. Company valuation techniques. These calculations require the use A consolidated risk report which includes action plans is reviewed of estimates for sales growth and EBITDA %. annually by the Board and the Audit Committee. For details of movements in the year, see note 3.1 Other price risk. For identified risks, which arise from the accounting and financial reporting, a risk assessment is performed. Throughout the Group’s internal control system framework on financial reporting relevant 6. Segment information control measures are defined, which reduce the financial risk. (a) Information on reportable segments Remaining risks are categorised depending on their possible impact Management has determined the operating segments based on the (low, average, high) and appropriately monitored. reports regularly reviewed by the chief operating decision maker (‘CODM’) in making strategic decisions. Each operating segment 5. Critical accounting estimates and judgements is managed separately by a dedicated Chief Executive Officer and management team allowing management to maintain and develop The Group is required to make estimates and assumptions that affect the specific identity of each Maison. These operating segments have the reported amount of certain asset, liability, income and expense been aggregated into four reportable segments as follows: items and certain disclosures regarding contingencies. Estimates and judgements applied by management are continuously evaluated and • Jewellery Maisons – businesses whose heritage is in the design, are based on information available, historical experience and other manufacture and distribution of jewellery products; these comprise factors, including expectations of future events that are believed Cartier and Van Cleef & Arpels; to be reasonable under the circumstances at the dates of preparation • Specialist Watchmakers – businesses whose primary activity of the consolidated financial statements. Principal matters where includes the design, manufacture and distribution of precision assumptions, judgement and estimates are made relate in particular to: timepieces. The Group’s Specialist Watchmakers comprise Piaget, (a) Inventory A. Lange & Söhne, Jaeger-LeCoultre, Vacheron Constantin, The Group records a provision against its inventory for damaged Officine Panerai, IWC, Baume & Mercier and Roger Dubuis; and non-sellable items. This provision is based on estimates made • Montblanc Maison – a business whose primary activity includes the by management taking into consideration various factors including design, manufacture and distribution of writing instruments; and historical experience, estimated future demand, discontinuations and development of products. • Other – other operations mainly comprise Alfred Dunhill, Lancel, Chloé, Net-a-Porter, Purdey, textile brands and other The provision is assessed at each reporting date by the respective manufacturing entities. Maison and is adjusted accordingly. Details of the movement in the provision are provided in note 15. The entire product range of a particular Maison, which may include jewellery, watches, writing instruments and leather goods, is reflected (b) Uncertain tax provision in the sales and operating result for that segment. The Group is subject to income taxes in a number of jurisdictions due to its wide geographical expansion. There are a number of transactions The non-separable costs of operating multi-brand regional platforms and calculations on which the ultimate tax determination is uncertain. are allocated to individual operating segments using allocation keys Management exercises judgement in determining the provision needed most relevant to the nature of the expense being allocated. with respect to these uncertain tax positions. The amounts accrued Unallocated corporate costs represent the costs of the Group’s are based on management’s interpretation of the specific tax law. New corporate operations which are not attributed to the segments. information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such Performance measurement is based on segment contribution before changes to tax liabilities will impact tax expense in the period that corporate costs, interest and tax, as management believes that such such a determination is made. information is most relevant in evaluating the results of segments relative to other entities that operate within similar markets. Details of the Group’s tax liabilities are given in note 12. Inter-segment transactions between different fiscal entities are (c) Recoverable amount of cash generating units for goodwill transacted at prices that reflect the risk and rewards transferred and impairment testing are entered into under normal commercial terms and conditions. Goodwill is tested annually for impairment. The recoverable amounts Inter-segment transactions within the same fiscal entity are transacted of cash-generating units are determined based on value-in-use at cost. All such transactions are eliminated in the reports reviewed by calculations. These calculations require the use of estimates for sales the CODM. growth and EBITDA %. Details of the impairment testing done in the year are given in note 8.

Richemont Annual Report and Accounts 2012 67 Consolidated financial statements

6. Segment information continued (a) Information on reportable segments continued The segment results for the years ended 31 March are as follows: 2012 2011 € m € m External sales Jewellery Maisons 4 590 3 479 Specialist Watchmakers 2 323 1 774 Montblanc Maison 723 672 Other 1 231 967 8 867 6 892

2012 2011 € m € m Operating result Jewellery Maisons 1 510 1 062 Specialist Watchmakers 539 379 Montblanc Maison 119 109 Other (35) (34) Operating profit from reportable segments 2 133 1 516 Unallocated corporate costs (93) (161) Consolidated operating profit before finance and tax 2 040 1 355 Finance costs (314) (292) Finance income 79 111 Share of post-tax results of associated undertakings (1) 101 Profit before taxation 1 804 1 275 Taxation (264) (196) Profit for the year 1 540 1 079

An impairment charge of € 2 million is included within the Other reportable segment for 2012 (2011: € 1 million included within each of the Jewellery Maisons and the Other reportable segment).

68 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 6. Segment information continued (a) Information on reportable segments continued The segment assets which are reviewed by the CODM comprise inventories and trade debtors. 2012 2011 € m € m Segment assets Jewellery Maisons 2 149 1 590 Specialist Watchmakers 1 219 956 Montblanc Maison 357 307 Other 417 328 4 142 3 181

Total assets for reportable segments 4 142 3 181 Property, plant and equipment 1 529 1 267 Goodwill 479 441 Other intangible assets 316 314 Investment property 64 – Investments in associated undertakings 10 7 Deferred income tax assets 443 349 Financial assets at fair value through profit or loss 2 469 2 224 Other non-current assets 248 211 Other receivables 274 205 Derivative financial instruments 27 148 Prepayments 116 119 Cash at bank and on hand 1 636 1 227 Total assets 11 753 9 693

The CODM also reviews additions to property, plant and equipment, and other intangible assets as follows: 2012 2011 € m € m Additions to non-current assets: Property, plant and equipment, and other intangible assets Jewellery Maisons 185 125 Specialist Watchmakers 119 65 Montblanc Maison 31 24 Other 101 60 Unallocated 81 34 517 308

Richemont Annual Report and Accounts 2012 69 Consolidated financial statements

6. Segment information continued (b) Information about geographical areas Each reporting segment operates on a worldwide basis. External sales presented in the three main geographical areas where the Group’s reportable segments operate are as follows: 2012 2011 € m € m Europe 3 097 2 588 France 669 551 Switzerland 347 303 Germany, Italy and Spain 670 606 Other Europe 1 411 1 128 Asia 4 517 3 306 China/Hong Kong 2 412 1 645 Japan 833 737 Other Asia 1 272 924 Americas 1 253 998 USA 973 758 Other Americas 280 240 8 867 6 892

Sales are allocated based on the location of the wholesale customer, the boutique or the shipping address for on-line transactions. The total non-current assets other than financial instruments and deferred tax assets located in Switzerland, the Company’s domicile, and the rest of the world are as follows: 2012 2011 € m € m Switzerland 1 217 1 056 Rest of the world 1 331 1 104 2 548 2 160

Segment assets are allocated based on where the assets are located. (c) Information about products External sales by product are as follows: 2012 2011 € m € m Watches 4 404 3 320 Jewellery 2 248 1 685 Leather goods 721 602 Writing instruments 357 359 Clothing and other 1 137 926 8 867 6 892

(d) Major customers Sales to no single customer represented more than 10 % of total revenue. Given the local nature of the luxury goods wholesale and retail businesses, there are no major customer relationships.

70 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 7. Property, plant and equipment Fixtures, Land and Plant and fittings, tools Assets under buildings machinery and equipment construction Total € m € m € m € m € m 1 April 2010 Cost 622 423 1 169 42 2 256 Depreciation (157) (282) (657) – (1 096) Net book value at 1 April 2010 465 141 512 42 1 160

Exchange adjustments 33 12 3 – 48 Acquisition through business combinations – – 8 – 8 Additions 14 32 161 58 265 Disposals – (1) (7) – (8) Depreciation charge (24) (32) (155) – (211) Impairments – – (2) – (2) Transfers and reclassifications 6 19 34 (52) 7

31 March 2011 Cost 685 483 1 323 48 2 539 Depreciation (191) (312) (769) – (1 272) Net book value at 31 March 2011 494 171 554 48 1 267

Fixtures, Land and Plant and fittings, tools Assets under buildings machinery and equipment construction Total € m € m € m € m € m 1 April 2011 Cost 685 483 1 323 48 2 539 Depreciation (191) (312) (769) – (1 272) Net book value at 1 April 2011 494 171 554 48 1 267

Exchange adjustments 33 12 35 4 84 Additions 25 73 263 94 455 Disposals (6) (1) (20) (1) (28) Depreciation charge (34) (39) (174) – (247) Impairments – (1) (1) – (2) Transfers and reclassifications 1 3 46 (50) –

31 March 2012 Cost 747 571 1 590 95 3 003 Depreciation (234) (353) (887) – (1 474) Net book value at 31 March 2012 513 218 703 95 1 529

Included above is property, plant and equipment held under finance leases with a net book value of € 27 million (2011: € 26 million) comprising: land and building € 25 million (2011: € 24 million); plant and machinery € 1 million (2011: € 2 million); and fixtures, fittings, tools and equipment € 1 million (2011: nil). Borrowing costs capitalised during the current and prior years were immaterial. Committed capital expenditure not reflected in these financial statements amounted to € 44 million at 31 March 2012 (2011: € 14 million). The impairment charges in respect of boutique assets and manufacturing machinery were determined with reference to the value-in-use of the assets which was less than their book value. The impairment losses are recognised in other operating expenses.

Richemont Annual Report and Accounts 2012 71 Consolidated financial statements

8. Goodwill Goodwill is the only intangible asset with an indefinite life. € m Cost at 1 April 2010 164 Exchange adjustments 16 Goodwill arising on business combinations 261 Cost at 31 March 2011 441 Exchange adjustments 30 Goodwill arising on business combinations (note 34) 8 Cost at 31 March 2012 479

Impairment testing for goodwill For the purposes of impairment testing, goodwill is allocated to the Group’s Maisons representing the lowest level within the Group at which goodwill is monitored. A summary of goodwill by reporting segment is presented below. 2012 2011 € m € m Jewellery Maisons 46 42 Specialist Watchmakers 133 123 Other 300 276 Total 479 441

Only one Maison, Net-a-Porter, has a goodwill allocation that is significant in comparison to the total goodwill of the Group. For this Maison, within the reportable segment Other, the goodwill allocation is € 287 million (2011: € 263 million). The recoverable amount of goodwill is determined based on the value-in-use of the Maison determined by discounting the future cash flows generated from the continuing operations based on an estimated or approved five-year business plan and applying a pre-tax discount rate of 11.4 % (2011: 11.4 %) and a terminal growth rate of 2 % (2011: 2 %) The key assumptions applied in determining future cash flows include sales growth and EBITDA %. The values assigned to the key assumptions represent management’s assessment of future trends in the luxury goods businesses and are based on both external and internal sources. The discount rate applied at March 2012 represents the risk specific to Net-a-Porter. The value-in-use significantly exceeds the carrying value of goodwill by such a magnitude that no reasonably possible change in any of the key assumptions would eliminate the headroom. Therefore no impairment losses were recognised.

72 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 9. Other intangible assets Computer Intellectual Leasehold and software property distribution and related Development related rights licences costs Total € m € m € m € m € m 1 April 2010 Cost 189 127 77 75 468 Amortisation (74) (90) (50) (29) (243) Net book value at 1 April 2010 115 37 27 46 225

Exchange adjustments 9 2 2 4 17 Acquisition through business combinations – 113 – 2 115 Additions: – internally developed – – – 25 25 – other 3 3 12 – 18 Disposals – – – (1) (1) Amortisation charge (19) (32) (10) (17) (78) Transfers (7) – – – (7)

31 March 2011 Cost 178 223 91 98 590 Amortisation (77) (100) (60) (39) (276) Net book value at 31 March 2011 101 123 31 59 314

Computer Intellectual Leasehold and software property distribution and related Development related rights licences costs Total € m € m € m € m € m 1 April 2011 Cost 178 223 91 98 590 Amortisation (77) (100) (60) (39) (276) Net book value at 1 April 2011 101 123 31 59 314

Exchange adjustments 7 6 2 4 19 Acquisition through business combinations – 8 – – 8 Additions: – internally developed – – – 30 30 – other 5 17 10 – 32 Disposals – – – (2) (2) Amortisation charge (17) (35) (9) (24) (85)

31 March 2012 Cost 192 255 106 127 680 Amortisation (96) (136) (72) (60) (364) Net book value at 31 March 2012 96 119 34 67 316

Amortisation of: € 24 million (2011: € 19 million) is included in cost of sales; € 9 million (2011: € 12 million) is included in selling and distribution expenses; € 11 million (2011: € 10 million) is included in administration expenses; and € 41 million (2011: € 37 million) is included in other expenses. Computer software and related licences include internally generated computer software, whilst internally generated product development costs are included within the total for development costs.

Richemont Annual Report and Accounts 2012 73 Consolidated financial statements

10. Investment property During the year Richemont became a limited partner in a property fund. The objective of the fund is to invest in and develop value-added luxury estate properties. In the period from formation the fund has invested in one property which is undergoing renovation at 31 March 2012. € m Net book value at 1 April 2011 –

Additions 64

31 March 2012 Cost 64 Depreciation – Net book value at 31 March 2012 64

The investment property was acquired at a fair market value. Given the recent date of acquisition management does not consider that there have been any material changes in the relevant property market that would result in the current fair value being significantly different from the acquisition value. Therefore no independent valuation has been undertaken at 31 March 2012. This will be undertaken in future years. An insignificant amount of operating income and expenses is included in administrative expenses.

11. Investments in associated undertakings € m At 1 April 2010 24 Exchange adjustments 2 Share of post-tax profit (including fair value gain on deemed disposal) 101 Deemed disposal (120) At 31 March 2011 7 Exchange adjustments 2 Acquisition of associated undertaking 2 Share of post-tax results (1) At 31 March 2012 10

Investments in associated undertakings at 31 March 2012 include goodwill of € 6 million (2011: € 6 million). The Group’s principal associated undertakings are as follows: % interest Country of held incorporation Lancel Japan Limited 30.0 Japan Greubel Forsey SA 20.0 Switzerland Rouages SA 34.7 Switzerland Les Cadraniers de Genève SA 50.0 Switzerland

Summary financial information for equity-accounted associates not adjusted for the percentage ownership held by the Group: 2012 2011 € m € m Revenue 36 25 Loss for the year (2) (3)

Total assets 44 28 Total liabilities (35) (21) 9 7

74 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 12. Taxation 12.1. Deferred income tax (a) Deferred income tax assets Acquisition in Recognised business Exchange (Charge)/credit directly combinations 1 April 2010 adjustments for year in equity and transfers 31 March 2011 € m € m € m € m € m € m Depreciation 36 – 6 – – 42 Provision on inventories 24 2 4 – – 30 Bad debt reserves 3 – (1) – – 2 Retirement benefits 12 – 1 – – 13 Unrealised gross margin elimination 183 (3) 4 – – 184 Tax losses carried forward 13 1 5 – (1) 18 Deferred tax on option plan 47 5 (1) 24 – 75 Other 34 5 9 (11) 2 39 352 10 27 13 1 403 Offset against deferred tax liabilities for entities settling on a net basis (37) (54) 315 349

Acquisition in Recognised business Exchange (Charge)/credit directly combinations 1 April 2011 adjustments for year in equity and transfers 31 March 2012 € m € m € m € m € m € m Depreciation 42 1 (18) – 1 26 Provision on inventories 30 2 (3) – – 29 Bad debt reserves 2 – – – – 2 Retirement benefits 13 – – – – 13 Unrealised gross margin elimination 184 – 74 – – 258 Tax losses carried forward 18 – 7 – – 25 Deferred tax on option plan 75 6 (2) (5) – 74 Other 39 4 11 14 – 68 403 13 69 9 1 495 Offset against deferred tax liabilities for entities settling on a net basis (54) (52) 349 443

€ 208 million of deferred tax assets are expected to be recovered after more than twelve months (2011: € 189 million).

Richemont Annual Report and Accounts 2012 75 Consolidated financial statements

12. Taxation continued 12.1. Deferred income tax continued (b) Deferred income tax liabilities Acquisition in Recognised business Exchange (Charge)/credit directly combinations 1 April 2010 adjustments for year in equity and transfers 31 March 2011 € m € m € m € m € m € m Depreciation (18) (3) 6 – (30) (45) Provision on inventories (8) (2) (3) – – (13) Unremitted earnings (10) – 1 – – (9) Other (28) (3) 1 – 8 (22) (64) (8) 5 – (22) (89) Offset against deferred tax assets for entities settling on a net basis 37 54 (27) (35)

Acquisition in Recognised business Exchange (Charge)/credit directly combinations 1 April 2011 adjustments for year in equity and transfers 31 March 2012 € m € m € m € m € m € m Depreciation (45) (1) 14 – (2) (34) Provision on inventories (13) (3) 10 – – (6) Unremitted earnings (9) – (5) – – (14) Other (22) – – – – (22) (89) (4) 19 – (2) (76) Offset against deferred tax assets for entities settling on a net basis 54 52 (35) (24)

€ 69 million of deferred tax liabilities are expected to be settled after more than twelve months (2011: € 76 million). (c) Unrecognised deferred tax assets 2012 2011 € m € m Tax losses – gross value 536 443 Deductible temporary differences (1) – 535 443

€ 242 million of the tax losses can be carried forward in the applicable jurisdiction of the reporting entity with no expiry dates (2011: € 199 million). 12.2. Taxation charge Taxation charge for the year: 2012 2011 € m € m Current tax 352 228 Deferred tax credit (88) (32) 264 196

The average effective tax rate is calculated in respect of profit before taxation but excluding the share of post-tax results of associated undertakings. The rates for the years ended 31 March 2012 and 2011 were 14.6 % and 16.7 % respectively.

76 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 12. Taxation continued 12.2. Taxation charge continued The taxation charge on the Group’s profit before tax differs from the amount that arises using the statutory tax rates applicable to profits of the consolidated companies as follows: 2012 2011 € m € m Profit before taxation 1 804 1 275 Share of post-tax results of associated undertakings 1 (101) Adjusted profit before taxation 1 805 1 174

Tax on adjusted profit calculated at statutory tax rate 379 246 Difference in tax rates (117) (52) Non-taxable income (12) (12) Non-deductible expenses net of other tax return – only adjustments (3) 7 Utilisation and recognition of prior year tax losses (4) (13) Non-recognition of current year tax losses 9 9 Withholding and other taxes 17 16 Prior year adjustments (5) (5) Taxation charge 264 196

The statutory tax rate applied reflects the rate applicable to the principal Swiss-based trading company.

13. Financial assets held at fair value through profit or loss 2012 2011 € m € m Non-current: Investments in listed undertakings 65 66 Investments in unlisted undertakings 4 4 Total non-current 69 70 Current: Investments in money market and government bond funds 2 400 2 154 Total current 2 400 2 154 Total financial assets held at fair value through profit or loss 2 469 2 224

All of the above assets were designated as held at fair value through profit or loss on initial recognition. These assets are managed and their performance is evaluated on a fair value basis. Management reviews performance and valuation of these investments on a regular basis. There are no other non-current or current financial assets that were designated as held at fair value through profit or loss on initial recognition.

14. Other non-current assets 2012 2011 € m € m Maisons’ collections 141 120 Lease deposits 92 74 Loans and receivables 6 6 Other assets 9 11 248 211

The carrying value of lease deposits, loans and receivables approximate their fair values. There are no overdue or impaired amounts included in deposits, loans and receivables.

Richemont Annual Report and Accounts 2012 77 Consolidated financial statements

15. Inventories 2012 2011 € m € m Raw materials and work in progress 1 395 1 067 Finished goods 2 271 1 722 3 666 2 789

The cost of inventories recognised as an expense and included in cost of sales amounted to € 3 081 million (2011: € 2 307 million). The Group reversed € 41 million (2011: € 58 million) of a previous inventory write-down during the year as the goods were sold at an amount in excess of the written down value. The amount reversed has been credited to cost of sales. The Group recognised € 115 million (2011: € 122 million) in the write-down of inventory as a charge to cost of sales.

16. Trade and other receivables 2012 2011 € m € m Trade receivables 497 413 Less: provision for impairment (21) (21) Trade receivables – net 476 392 Loans and receivables 225 174 Other receivables 49 31 750 597

Trade and other receivables are valued based on expected cash flows which are not discounted as they are expected to occur within the next twelve months. There is no concentration of credit risk with respect to trade receivables as the Group has a large number of internationally-dispersed customers. In addition to the amounts above there are non-current assets amounting to € 98 million (2011: € 80 million) and cash balances as disclosed in note 18 which are considered to be loans and receivables. The maximum exposure to credit risk for trade receivables by geographic region was: 2012 2011 € m € m Europe 241 224 France 68 55 Switzerland 48 43 Germany, Italy and Spain 64 79 Other Europe 61 47 Asia 165 114 China/Hong Kong 75 45 Japan 57 46 Other Asia 33 23 Americas 70 54 USA 53 40 Other Americas 17 14 476 392

The maximum exposure to credit risk for trade receivables by type of customer was: 2012 2011 € m € m Wholesale customers 372 322 Retail customers 104 70 476 392

The Group’s most significant wholesale customer in Hong Kong accounts for € 9 million of the total trade receivables carrying amount at March 2012 (2011: € 8 million for a Hong Kong wholesaler).

78 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 16. Trade and other receivables continued Impairment losses Impairment losses are recognised for all known bad debts and are provided on a specific basis. The movement in the provision for impairment of trade and other receivables was as follows: 2012 2011 € m € m Balance at 1 April of prior year (21) (26) Exchange adjustment (1) – Provision charged to profit or loss (10) (8) Utilisation of provision 2 5 Reversal of unutilised provision 9 8 Balance at 31 March (21) (21)

At 31 March 2012, trade receivables of € 28 million (2011: € 36 million) were impaired. Receivables past due but not impaired: 2012 2011 € m € m Up to three months past due 58 59 Three to six months past due 8 10 Over six months past due 9 13 75 82

Based on past experience, the Group does not impair receivables that are not past due unless they are known to be bad debts. The Group has established credit check procedures that ensure the high creditworthiness of its customers. Due to their short maturity, the fair values of trade and other receivables approximate to their book values. Trade receivables are denominated in the functional currency of the selling entity.

17. Derivative financial instruments The Group uses the following derivative instruments: (a) Currency forwards: representing commitments to purchase or sell foreign and domestic currencies; (b) Currency options: contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) or both, at or by a set date or during a set period, a specific amount of a foreign currency or financial instrument at a pre-determined price; (c) Accrual style option forwards: forward instruments that incorporate similar option terms as described above and that may give the right to increase the nominal value; (d) Interest rate swaps: commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of interest rates (for example, fixed for floating). No exchange of principal takes place. The Group’s credit risk represents the potential cost of replacing the swap contracts if counterparties fail to perform their obligation; and (e) Derivative share options: options granted to certain Richemont executives giving them the right to acquire shares in listed equities at pre-determined prices.

Richemont Annual Report and Accounts 2012 79 Consolidated financial statements

17. Derivative financial instruments continued The nominal amounts of certain types of financial instruments provide a basis for comparison with instruments recognised on the reporting date but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments, and therefore do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms. The fair value of publicly traded derivatives, securities and investments is based on quoted market prices at the reporting date. In assessing the fair value of non-traded derivatives and other financial instruments, the Group uses a variety of methods and assumptions that are based on market conditions and risks existing at each reporting date. The nominal amounts and fair values of derivative instruments held are as follows:

Nominal amount Fair value assets Fair value liabilities 2012 2011 2012 2011 2012 2011 € m € m € m € m € m € m Derivatives designated as cash flow hedges Qualifying cash flow hedges Currency forwards – 693 – 80 – – Non-hedge derivatives Currency forwards 2 629 772 24 54 (82) (1) Currency options 53 33 1 3 (1) – Accrual style option forwards 101 85 2 11 (1) – Interest rate swap derivatives – 35 – – – – Derivative share options 65 66 – – (40) (35) 2 848 1 684 27 148 (124) (36)

Other than the non-hedge derivatives detailed above, the Group has no other financial assets classified as held for trading. The contractual maturity of the nominal value of derivative instruments held is as follows:

Less than 6 months Between 6 and 12 months 2012 2011 2012 2011 € m € m € m € m Derivatives designated as cash flow hedges Qualifying cash flow hedges Currency forwards – 364 – 329 Non-hedge derivatives Currency forwards 1 444 391 1 185 381 Currency options 39 – 14 33 Accrual style option forwards 83 66 18 19 Interest rate swap derivatives – 35 – – Derivative share options 65 66 – – 1 631 922 1 217 762

80 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 17. Derivative financial instruments continued Nominal amount Nominal amounts represent the following: • Currency forwards: the sum of all contract volumes outstanding at the year end. • Currency options: the sum of the amounts underlying the options outstanding at the year end. • Accrual style option forwards: the nominal value accrued at the year end. Depending on future movements in foreign currency exchange rates the nominal amount at the date of expiry of these options could range between € 101 million and € 256 million. • Derivative share options: the sum of all share options on listed equities, other than Compagnie Financière Richemont SA, granted to executives as part of the Group stock option plan. Foreign currency amounts have been translated to euros using the exchange rates prevailing at the reporting date.

18. Cash and cash equivalents 2012 2011 € m € m Cash at bank and on hand 1 636 1 227 Bank overdrafts (764) (570) 872 657

The effective interest rate on bank overdrafts was 1.6 % (2011: 1.1 %). The effective interest rate on cash at bank was 0.8 % (2011: 0.6 %).

19. Equity 19.1. Share capital 2012 2011 € m € m Authorised, issued and fully paid: 522 000 000 ‘A’ bearer shares with a par value of CHF 1.00 each 304 304 522 000 000 ‘B’ registered shares with a par value of CHF 0.10 each 30 30 334 334

Holders of ‘A’ and ‘B’ shares enjoy the same dividend rights, but due to the differing par values of the two classes of shares, ‘B’ shareholders receive one tenth of the dividend per share paid to holders of the ‘A’ shares.

Richemont Annual Report and Accounts 2012 81 Consolidated financial statements

19. Equity continued 19.2. Treasury shares In order to hedge partially its potential obligations arising under the stock option plan, the Group has purchased Richemont ‘A’ shares. Changes in the holding of this treasury stock of shares are shown as movements in shareholders’ equity as follows: Shares millions € m Balance at 1 April 2010 20.3 248 Purchased 4.7 103 Sold (2.5) (26) Balance at 31 March 2011 22.5 325 Purchased 8.0 268 Sold (6.2) (78) Balance at 31 March 2012 24.3 515

The Company has given a pledge over 9 734 689 Richemont ‘A’ shares as security for vested warrants granted under the Group’s stock option plan. The cost value of the 6.2 million shares (2011: 2.5 million shares) sold during the year to plan participants who exercised their options was € 78 million (2011: € 26 million). During the year under review the Group acquired 1.6 million treasury shares in the open market, and a further 6.4 million treasury shares through the exercise of over-the-counter purchased call options (‘OTC options’) with a third party, at a total cost of € 268 million. These treasury shares together with outstanding OTC options provide a comprehensive hedge of the Group’s potential obligations arising under the stock option plan. In the same period the Group delivered 6.2 million treasury shares for proceeds of € 89 million, in settlement of options exercised in the period and traded options exercised in previous periods. The costs of the call options together with the gain realised on shares sold during the year to plan participants amounted to a net gain of € 9 million (2011: a net loss of € 2 million) and were recognised directly in retained earnings. The market value of the 24.3 million shares (2011: 22.5 million shares) held by the Group at the year end, based on the closing price at 31 March 2012 of CHF 56.60 (2011: CHF 53.05), amounted to € 1 142 million (2011: € 915 million). 19.3. Hedge and share option reserves Hedge Share option reserve reserve Total € m € m € m Balance at 1 April 2010 11 183 194 Movements in hedge reserve – fair value gains 81 – 81 – recycle to profit or loss (13) – (13) Movement in employee share option reserve – expense recognised in the year – 30 30 Tax on items recognised directly in equity (11) 24 13 Balance at 31 March 2011 68 237 305 Movements in hedge reserve – fair value gains 25 – 25 – recycle to profit or loss (108) – (108) Movement in employee share option reserve – equity-settled share option expense – 24 24 Tax on items recognised directly in equity 14 (5) 9 Balance at 31 March 2012 (1) 256 255

The hedge reserve balance at 31 March 2012 is in respect of hedging instruments completed during the year but not yet recycled to profit or loss as the forecast transaction being hedged will impact profit only in the next 12 months.

19.4. Legal reserves Legal reserves amounting to € 95 million (2011: € 95 million) are included in the reserves of Group companies but are not available for distribution.

82 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 20. Borrowings 2012 2011 € m € m Non-current Bank borrowings 4 103 Finance lease obligations 18 17 22 120 Current Short-term loans 62 101 Bank borrowings 3 – Finance lease obligations 1 1 66 102 Total borrowings 88 222

Short-term loans Bank borrowings Finance lease obligations Total 2012 2011 2012 2011 2012 2011 2012 2011 € m € m € m € m € m € m € m € m Amounts repayable within the financial year ended/ending 31 March 2012 – 101 – – – 1 – 102 2013 62 – 3 95 2 1 67 96 2014 – – – 3 1 1 1 4 2015 – – 4 5 1 1 5 6 2016 – – – – 1 1 1 1 2017 – – – – 1 1 1 1 after more than 5 years – – – – 83 78 83 78 62 101 7 103 89 84 158 288 Interest – – – – (70) (66) (70) (66) 62 101 7 103 19 18 88 222

Bank and other borrowings are subject to market-linked rates of interest ranging from 0.4 % to 12.3 %. None of the Group’s borrowings are secured. The Group’s borrowings are denominated in the following currencies: 2012 2011 € m € m Japanese yen 2 35 Swiss franc 15 15 US dollar 15 14 Chinese yuan 27 101 Taiwan dollar 17 17 Other 12 40 88 222

The carrying amounts of borrowings approximate their fair values. The fair values of long-term borrowings are based on cash flows discounted using a rate based on the borrowing rate.

Richemont Annual Report and Accounts 2012 83 Consolidated financial statements

21. Liquidity risk The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements. Derivative assets are excluded. All outstanding derivative share options are fully vested and have expiry dates from June 2012 to June 2015. The Group holds equity investments which fully hedge the obligations under the stock option plans. 31 March 2012 Non-derivative financial liabilities 6 months Contractual Carrying or less cash flow amount € m € m € m Current financial liabilities Other short-term loans 62 62 62 Trade and other payables 948 948 948 Bank overdrafts 764 764 764 1 774 1 774 1 774

Within Between Between After more Contractual Carrying 1 year 1-2 years 2-3 years than 3 years cash flow amount € m € m € m € m € m € m Non-current financial liabilities Long-term borrowings (including current portion) 5 2 6 85 98 26 Other long-term liabilities – 10 9 170 189 176 5 12 15 255 287 202

6 months Between Contractual Carrying or less 6-12 months cash flow amount € m € m € m € m Current derivative financial liabilities Currency forwards 1 250 447 1 697 82 Accrual style option forwards 71 – 71 1 Derivative share options 65 – 65 40 Currency options 39 – 39 1 1 425 447 1 872 124

Contractual Carrying cash flow amount € m € m Total financial liabilities 3 933 2 100

84 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 21. Liquidity risk continued 31 March 2011 Non-derivative financial liabilities 6 months Contractual Carrying or less cash flow amount € m € m € m Current financial liabilities Other short-term loans 101 101 101 Trade and other payables 825 825 825 Bank overdrafts 570 570 570 1 496 1 496 1 496

Within Between Between After more Contractual Carrying 1 year 1-2 years 2-3 years than 3 years cash flow amount € m € m € m € m € m € m Non-current financial liabilities Long-term borrowings (including current portion) 7 98 4 86 195 121 Other long-term liabilities – – – 175 175 158 7 98 4 261 370 279

6 months Contractual Carrying or less cash flow amount € m € m € m Current derivative financial liabilities Currency forwards 23 23 1 Accrual style option forwards 11 11 – Derivative share options 66 66 35 100 100 36

Contractual Carrying cash flow amount € m € m Total financial liabilities 1 966 1 811

22. Retirement benefit obligations The net liabilities reflected in non-current liabilities in the statement of financial position in respect of post-employment benefit plans are determined as follows: 2012 2011 € m € m Present value of funded obligations (1 129) (950) Fair value of plan assets 1 067 947 Net funded obligations (62) (3) Present value of unfunded obligations (48) (47) Unrecognised actuarial loss 77 27 Amount not recognised due to asset limit – (15) Net liabilities (33) (38)

Richemont Annual Report and Accounts 2012 85 Consolidated financial statements

22. Retirement benefit obligations continued The movement in the present value of the defined benefit obligations was as follows: 2012 2011 € m € m Balance at 1 April of prior year (997) (881) Exchange adjustments (67) (57) Current service cost (58) (48) Contributions by plan participants (29) (23) Interest cost (36) (34) Actuarial (losses)/gains (20) 4 Past service costs – (1) Liabilities extinguished on settlements 1 2 Benefits paid 29 41 Balance at 31 March (1 177) (997)

Present value of funded obligations (1 129) (950) Present value of unfunded obligations (48) (47) (1 177) (997)

The movement in the fair value of plan assets was as follows: 2012 2011 € m € m Balance at 1 April of prior year 947 807 Exchange adjustments 66 56 Expected return on plan assets 45 42 Actuarial (losses)/gains (54) 8 Assets distributed on settlements (1) (1) Contributions paid by employer 64 53 Contributions paid by plan participants 29 23 Benefits paid (29) (41) Balance at 31 March 1 067 947

The major categories of plan assets at the reporting date are as follows: 2012 2011 € m € m Equities 309 314 Bonds 437 380 Property 131 119 Other assets, including insurance policies 190 134 Fair value of plan assets 1 067 947

The plans do not invest directly in property occupied by or in financial securities issued by the Group. The expected rate of return on plan assets during the coming year is 3.7 % (2011: 4.5 %). This expected rate of return was derived as a weighted average of the long-term expected rates of return on each of the major asset classes at the measurement date taking account of government bond yields available at the reporting date and investment market expectations for future returns in excess of government bond yields for each asset class. The actual return on plan assets was a loss of € 9 million (2011: gain of € 50 million).

86 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 22. Retirement benefit obligations continued The amounts recognised in profit or loss in respect of such plans are as follows: 2012 2011 € m € m Current service cost 58 48 Interest cost 36 34 Expected return on plan assets (45) (42) Net actuarial losses recognised in the year 26 – Adjustment to recognise the effect of asset limit (16) 13 Gains on curtailment and/or settlement – (1) 59 52

2012 2011 € m € m Expense charged in: Cost of sales 28 24 Net operating expenses 31 28 59 52

Total pension costs are included in employee benefits expense (note 28). Changes in the net liabilities recognised are as follows: 2012 2011 € m € m Balance at 1 April of prior year (38) (39) Total expense (59) (52) Contributions paid 64 53 Balance at 31 March (33) (38)

The Group expects to contribute € 64 million (actual paid in 2012: € 64 million) to such plans in the coming twelve months. The principal actuarial assumptions used for accounting purposes reflected prevailing market conditions in each of the countries in which the Group operates and were as follows: 2012 Weighted 2011 Weighted Range average Range average Discount rate 1.4 % to 4.9 % 2.8 % 1.8 % to 5.5 % 3.4 % Expected return on plan assets 1.7 % to 4.8 % 3.7 % 2.7 % to 5.5 % 4.5 % Future salary increases 1.8 % to 4.8 % 2.7 % 1.9 % to 5.0 % 2.8 % Future pension increases 2.1 % to 3.2 % 2.9 % 2.2 % to 3.4 % 3.1 %

Assumptions used to determine the benefit expense and the end-of-year benefit obligations for the defined benefit plans varied within the ranges shown above. The weighted average rate for each assumption used to measure the benefit obligation is also shown. The assumptions used to determine end-of-year benefit obligations are also used to calculate the following year’s cost. The Group’s major benefit plans are in Switzerland, the UK and Germany. In Switzerland, the Group operates a foundation covering the majority of employees in Switzerland, which holds assets separately to the Group. The foundation operates as a defined contribution plan with the Group’s annual contribution being a fixed percentage of salary. However, under IAS 19, Employee Benefits, the foundation is accounted for as a defined benefit plan on account of underlying benefit guarantees. For 2012, the expense recognised in the Group’s consolidated profit in respect of the foundation is equal to the Group’s contribution. In the UK, the Group operates a defined contribution plan for new hires and a defined benefit plan, which is closed to new entrants. For the defined benefit plan, benefits are related to service and final salary. The plan is funded through a trustee-administered fund, which is held separately to the Group, with a funding target to maintain assets equal to the value of the accrued benefits based on projected salaries. Contributions to the defined contribution arrangements are in addition and charged directly to profit or loss.

Richemont Annual Report and Accounts 2012 87 Consolidated financial statements

22. Retirement benefit obligations continued In Germany, although the plan is largely defined contribution in nature, it is accounted for under IAS 19 as a defined benefit plan due to some underlying guarantees applying. The plan is available to new hires from January 2008 and existing employees who chose to move from the old plan. The old plan is funded through a contractual trust agreement. Benefits under arrangements other than those detailed above are generally related to service and either salary or grade. They are funded in all locations where this is consistent with local practice; otherwise the liability is recognised in the statement of financial position. The Group does not have any significant liabilities in respect of any other post-employment benefits, including post-retirement healthcare liabilities. Defined benefit pension plans for the current and previous periods: 2012 2011 2010 2009 2008 € m € m € m € m € m Present value of defined benefit obligation (1 177) (997) (881) (673) (673) Fair value of plan assets 1 067 947 807 618 723 (Deficit)/surplus in plan (110) (50) (74) (55) 50

Experience adjustments on plan liabilities (21) 4 (109) 53 44 Experience adjustments on plan assets (54) 8 74 (178) (45)

23. Provisions Property Warranties and related and Employee sales related restructuring benefits Other Total € m € m € m € m € m At 1 April 2011 96 44 112 11 263 Charged/(credited) to profit or loss: – additional provisions 94 29 93 7 223 – unused amounts reversed (11) (3) (2) (2) (18) Net charge 83 26 91 5 205 Utilised during the year (69) (14) (20) (4) (107) Transfers and reclassifications – (52) 2 (1) (51) Exchange adjustments 5 1 5 – 11 At 31 March 2012 115 5 190 11 321

2012 2011 € m € m Total provisions at 31 March: – non-current 158 137 – current 163 126 321 263

88 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 23. Provisions continued Warranties and sales related provisions Group companies establish provisions for potential sales returns and warranties provided on certain products. Based on past experience a provision of € 115 million (2011: € 96 million) has been recognised for expected sales returns and warranty claims. It is expected that € 106 million (2011: € 88 million) of this provision will be used within the following twelve months and that the remaining € 9 million (2011: € 8 million) which relates solely to potential warranty claims will be utilised over the remainder of the expected warranty period of the products. Property related and restructuring provisions At 31 March 2012 these provisions represent the Group’s obligations arising from committed restructuring activities. It is anticipated that most of the restructuring provision will be utilised in the coming year. In the current year € 52 million of property related provisions have been reclassified to other payables and other long-term liabilities to better reflect the nature of the underlying liabilities. Employee benefits provisions These include obligations arising under the Group’s long-term incentive plans and the social costs on the Group’s stock option plan. An amount of € 45 million (2011: € 21 million) is expected to be utilised in the coming twelve months. The remainder will be utilised in the next two to eight years. Other provisions These provisions relate to legal and constructive obligations. It is not expected that the outcomes of legal claims will give rise to any significant losses beyond the amounts provided at 31 March 2012.

24. Other long-term financial liabilities 2012 2011 € m € m Put option over shares of subsidiary undertakings 97 133 Other long-term financial liabilities 79 25 176 158

The Group has entered into put and call option arrangements with the holders of shares of certain subsidiary undertakings giving Richemont the right to acquire and the holders the right to sell all, but not part, of their interest between 1 April and 30 September 2015 at a value equal to the higher of the fair value at the date of exercise and £ 10.1 million (less any share of capital distributions). The redemption value of the options is determined using a discounted cash flow model based on management forecasts and projections beyond the forecast period.

Richemont Annual Report and Accounts 2012 89 Consolidated financial statements

25. Trade and other payables 2012 2011 € m € m Trade creditors 508 441 Other creditors 440 384 948 825

Trade and other payables are valued based on expected cash flows which are not discounted as they are expected to occur within the next twelve months.

26. Other operating (expense)/income 2012 2011 € m € m Royalty income – net 25 20 Amortisation of other intangible assets acquired on business combinations (41) (36) Other expenses (27) (14) (43) (30)

27. Net profit Net profit is stated after the following items of expense/(income): 2012 2011 € m € m Depreciation of property, plant and equipment (note 7) 247 211 Impairment of property, plant and equipment (note 7) 2 2 Amortisation of other intangible assets (note 9) 85 78 Operating lease rentals: – minimum lease rental 329 285 – contingent rental 252 193 Sub-lease rental income (3) (2) Cash flow hedge – transfer from other comprehensive income (108) (13) Research and development costs 53 33 Loss on disposal of property, plant and equipment 4 5 Loss on disposal of other intangible assets 2 1 Restructuring charges 1 1

90 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 28. Employee benefits expense 2012 2011 € m € m Wages and salaries including termination benefits € 4 million (2011: € 3 million) 1 308 1 120 Social security costs 225 201 Share option expense (note 36) 48 75 Long-term employee benefits 48 29 Pension costs – defined contribution plans 24 17 Pension costs – defined benefit plans (note 22) 59 52 1 712 1 494

2012 2011 number number Average number of employees: Switzerland 7 460 6 823 Rest of the world 17 149 14 564 24 609 21 387

29. Finance costs and income 2012 2011 € m € m Finance costs: Interest expense: – bank borrowings (23) (21) – other financial expenses (7) (6) Net loss in fair value of financial instruments at fair value through profit or loss – (14) Net foreign exchange losses on monetary items (186) (251) Mark-to-market adjustment in respect of hedging activities (98) – Finance costs (314) (292) Finance income: Interest income: – bank, other deposits, and money market and government bond funds 30 17 – other financial income 1 – Dividend income on financial assets at fair value through profit or loss 3 4 Net gain in fair value of financial instruments at fair value through profit or loss 2 – Net gain on re-measurement of put option liability on non-controlling interests 43 – Net gain on disposal of subsidiary undertaking – 5 Mark-to-market adjustment in respect of hedging activities – 85 Finance income 79 111 Net finance costs (235) (181)

Foreign exchange gains resulting from effective hedge derivative instruments of € 108 million (2011: gains of € 13 million) were reflected in cost of sales during the year. Gains and losses on all non-hedge derivatives, as well as the ineffective portion of hedge derivatives, are included in net finance costs.

Richemont Annual Report and Accounts 2012 91 Consolidated financial statements

30. Earnings per share 30.1. Basic Basic earnings per share is calculated by dividing the profit attributable to owners of the parent company by the weighted average number of shares in issue during the year, excluding shares purchased by the Group and held in treasury. 2012 2011 Profit attributable to owners of the parent company (€ millions) 1 544 1 090 Weighted average number of shares in issue (millions) 548.3 551.3

30.2. Diluted Diluted earnings per share is calculated adjusting the weighted average number of shares outstanding, which assumes conversion of all dilutive potential shares. The Group has only one category of dilutive potential shares: share options. The calculation is performed for the share options to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. 2012 2011 Profit attributable to owners of the parent company (€ millions) 1 544 1 090 Weighted average number of shares in issue (millions) 548.3 551.3 Adjustment for share options (millions) 11.9 14.8 Weighted average number of shares for diluted earnings per share (millions) 560.2 566.1

30.3. Headline earnings per share The presentation of headline earnings per share as an alternative measure to earnings per share is required under the JSE listing requirements.

2012 2011 € m € m Profit attributable to owners of the parent company 1 544 1 090 Loss on disposal of non-current assets 6 6 Impairment of assets 2 2 Gain on re-measurement to fair value of associated undertaking deemed disposed of – (102) Currency exchange losses reclassified from currency translation adjustment reserve 1 11 Gain on disposal of subsidiary undertaking – (5) Headline earnings 1 553 1 002

2012 2011 millions millions Weighted average number of shares – Basic 548.3 551.3 – Diluted 560.2 566.1

€ per share € per share Headline earnings per share – Basic 2.832 1.818 – Diluted 2.772 1.770

92 Richemont Annual Report and Accounts 2012 Consolidated financial statements

32. Cash flow generated from operations 2012 2011 € m € m Operating profit 2 040 1 355 Depreciation and impairment of property, plant and equipment 249 213 Amortisation and impairment of other intangible assets 85 78 Loss on disposal of property, plant and equipment 4 5 Loss on disposal of intangible assets 2 1 Increase in provisions 67 92 Decrease in retirement benefit obligations (5) (2) Non-cash items (83) 18 Increase in inventories (684) (350) (Increase)/decrease in trade receivables (72) 83 Increase in other receivables and prepayments (65) (67) Increase in current liabilities 251 267 Increase in long-term liabilities – 3 Cash flow generated from operations 1 789 1 696

33. Financial commitments and contingent liabilities At 31 March 2012 the Group had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business from which it is anticipated that no material losses will arise. Details of the Group’s commitments in respect of financial derivatives are given in note 17 and in respect of property, plant and equipment in note 7. The Group leases various boutiques, offices and manufacturing premises under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The cost for certain boutique leases contains a fixed portion together with a variable portion which is most commonly a percentage of sales achieved. The commitments below reflect only the fixed elements. The Group had signed non-cancellable operating leases in respect of which the following minimum rentals are payable at 31 March: Land and buildings Other assets Total 2012 2011 2012 2011 2012 2011 € m € m € m € m € m € m Within one year 367 272 8 8 375 280 Between two and five years 802 587 7 11 809 598 Thereafter 246 168 – 1 246 169 1 415 1 027 15 20 1 430 1 047

Richemont Annual Report and Accounts 2012 93 Consolidated financial statements

34. Business combinations In the year to 31 March 2012 the Group acquired a number of small business units to enhance its retail and on-line sales networks. As none of the acquisitions was individually significant the information presented is on an aggregate basis. These businesses contributed sales of € 27 million for the period from acquisition to 31 March 2012 and profits of € 6 million for the same period. Had the acquisitions taken place on 1 April 2011, the annual contribution to sales would have been € 51 million and profits € 12 million. Net assets acquired Business operations acquired Acquirees’ Fair value carrying amount € m € m Intangible assets 8 – Inventories 7 7 Cash and cash equivalents 1 1 Deferred and current tax (1) – Net assets acquired 15 8

Fair value of net assets acquired 15 Goodwill 8 Total purchase consideration 23 Payable due to parent (7) Consideration deferred to future periods (12) Purchase consideration – cash paid 4 Cash acquired (1) Cash outflow on acquisitions 3

Goodwill, none of which is deductible for tax purposes, represents technical know-how that does not qualify for separate recognition. Acquisition related transaction costs of € 0.2 million were expensed as other income/expenses in the year to 31 March 2012. The consideration deferred until future periods is determined by two means. For retail boutiques, the consideration is based on a percentage of future sales over an agreed period; for on-line sales networks, the consideration is based on the growth in value of the related business from acquisition till 2015. € 5 million of consideration deferred in prior periods has been settled in the year against amounts due to the Group.

94 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 34. Business combinations continued In the year ended 31 March 2011 the Group obtained effective control of 93.0 % of the voting rights of Net-a-Porter, a successful luxury fashion on-line retailer, by acquiring the additional 62.5 % not previously owned for a net cash consideration of € 245 million. The acquisition of Net-a-Porter was transacted through Largenta Limited (‘Largenta’), a UK holding company set up with the sole purpose of acquiring the business. The ordinary shares of Largenta were subscribed 95.9 % by Richemont and 4.1 % by an executive of Net-a-Porter. In addition to the ordinary shares the executive of Net-a-Porter acquired ‘B’ non-voting shares in Largenta. Together, the ordinary and the ‘B’ shares carry an economic entitlement equivalent to 14.1 % of the increase in equity value of Net-a-Porter over the period to 31 March 2015. This is achieved through two separate put and call option arrangements. The arrangements give Richemont the right to acquire and the shareholder the right to sell all, but not part, of the shareholding on 1 April 2015. In addition, Largenta offered, and certain ordinary shareholders of Net-a-Porter accepted, the opportunity to retain an interest in the ordinary shares, representing approximately 3.0 % of Net-a-Porter. This interest is in the form of ordinary ‘C’ shares which have the same voting and dividend rights as the ordinary shares. The Group has entered into put and call option arrangements with the holders of the ordinary ‘C’ shares. The arrangements give Richemont the right to acquire and the holders of the ordinary ‘C’ shares the right to sell all, but not part, of their shareholding between 1 April and 30 September 2015 at a value equal to the higher of the fair value at the date of exercise and £ 10.1 million (less any share of capital distributions). In the period since acquisition, Net-a-Porter has sold ‘B’ shares to their senior executive team. The ‘B’ shares entitle the holders to an economic interest in the growth in Net-a-Porter above a threshold value. The ‘B’ shares carry a put right entitling the holders to sell all, but not some, of their ‘B’ shares to Richemont on 31 March 2015 at the fair market value at the date of exercise (less threshold value). There is an equivalent call right for Richemont to acquire the ‘B’ shares at the same price.

35. Related-party transactions Compagnie Financière Rupert, Bellevue, Geneva holds 522 000 000 ’B’ registered shares representing an interest in 50 % of the Company’s voting rights. In addition, Compagnie Financière Rupert has advised that parties related to it held a total of 2 836 664 Richemont ‘A’ bearer shares, or the equivalent thereof in the form of Depository Receipts, as at 31 March 2012, representing 0.3 % of the Company’s voting rights. The Group has a number of transactions and relationships with related parties, as defined by IAS 24, Related Party Disclosures, all of which are undertaken in the normal course of business. Besides Compagnie Financière Rupert, the Board of Directors and the Group Management Committee (‘key management’), the Group has identified the following other related parties: • Richemont’s associated undertakings (see note 11) • Richemont’s joint venture interests (see note 37) • Reinet Investments S.C.A. (‘Reinet’), a public company incorporated in Luxembourg • Remgro Limited, a public company incorporated in South Africa • Richemont foundations (employee and others)

Richemont Annual Report and Accounts 2012 95 Consolidated financial statements

35. Related-party transactions continued The following transactions were carried out with related parties giving rise to (expense/payables) and income/receivables: (a) Transactions and balances between the Richemont Group and its associated undertakings 2012 2011 € m € m Rouages SA – purchase of watch components (2) (1) Les Cadraniers de Genève SA – purchase of watch components (1) –

(b) Transactions and balances between the Richemont Group and entities under common control 2012 2011 € m € m Goods and services bought from and other transactions with entities under common control: Falconair Limited – provision of aviation services and reimbursement of third-party expenses (2) (2) Montblanc Kulturstiftung – donation – (1) Remgro Ltd – professional fees (1) –

There were no amounts payable to or receivable from entities under common control at 31 March 2012 nor at 31 March 2011. (c) Transactions and balances between the Richemont Group and its joint ventures 2012 2011 € m € m Goods and services bought from and other transactions with its joint ventures: Ralph Lauren Watch and Jewelry Company Sàrl (14) (8)

Services provided to its joint venture: Laureus World Sports Awards Limited – sponsorship (4) (4)

Goods and services sold to and other transactions with its joint ventures: Ralph Lauren Watch and Jewelry Company Sàrl 3 3

Payables outstanding at 31 March: Ralph Lauren Watch and Jewelry Company Sàrl: Trading (1) – Laureus World Sports Awards Limited – sponsorship (1) –

Receivables outstanding at 31 March: Ralph Lauren Watch and Jewelry Company Sàrl: Trading 3 2 Ralph Lauren Watch and Jewelry Company Sàrl: Loan 18 12

(d) Transactions and balances between the Richemont Group and its investment entities 2012 2011 € m € m Receivables outstanding at 31 March: Luxe International Inc. 2 2

Loans provided to joint venture and investment entities are interest bearing at market comparable rates and repayable on fixed dates.

96 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 35. Related-party transactions continued (e) Individuals During the year the Group gave donations of € 0.8 million (2011: € 0.9 million) to the Fondazione Cologni dei Mestieri d’Arte. The Foundation promotes, supports and organises cultural, scientific and training initiatives in favour of the Arts and Crafts and the Trades of Art. Dr Franco Cologni, a non-executive director of the Company, is the president of the Foundation. The Group also made donations of € 0.2 million (2011: € 0.1 million) to the Fondazione Giuliano e Maria Carmen Magnoni, a charitable organisation supporting initiatives for young people in disadvantaged conditions. Mr Ruggero Magnoni is vice-chairman of the Foundation. Maître Dominique Rochat, a non-executive director, is a partner of the Swiss legal firm, Lenz & Staehelin. During the year under review, Lenz & Staehelin received fees totalling € 0.7 million (2011: € 0.4 million) from Group companies for advice on legal and taxation matters. In addition to his non-executive director’s fee, Lord Douro received fees, pension contributions and other benefits totalling € 0.1 million (2011: € 0.1 million) in connection with his role as director and non-executive chairman of Richemont Holdings (UK) Limited, the holding company for the Group’s UK interests, and in respect of consultancy services provided to the Group. Dr Franco Cologni and Mr Alain Dominique Perrin provided consultancy services to the Group in addition to their duties as non-executive directors. During the year to 31 March 2012 Dr Cologni received € 0.3 million (2011: € 0.1 million) and Mr Perrin € 1.7 million (2011: € 1.6 million) for the services provided. These fees are included in the individual disclosures of key management compensation as short-term employee benefits. In accordance with the terms of the modification to the Group’s stock option plan, in October 2008, certain executive directors and members of the Group Management Committee received vested options over shares in British American Tobacco plc (‘BAT’) and Reinet. At 31 March 2012 the Group recognised a liability of € 31 million (2011: € 24 million) in respect of its obligation to deliver shares on exercise of the vested options. The Group holds shares in BAT and Reinet which fully hedge the liability. (f) Key management compensation 2012 2011 € m € m Salaries and short-term employee benefits 21 18 Short-term incentives 11 10 Long-term benefits 3 3 Post-employment benefits 3 3 Share option expense 8 8 46 42

Richemont Annual Report and Accounts 2012 97 Consolidated financial statements

35. Related-party transactions continued (f) Key management compensation continued Key management comprises the Board of Directors of Compagnie Financière Richemont SA and the Group Management Committee as detailed below.

Board of Directors Johann Rupert Executive Chairman & Chief Executive Officer Yves-André Istel Non-Executive Deputy Chairman Richard Lepeu Deputy Chief Executive Officer Gary Saage Chief Financial Officer Franco Cologni Non-Executive Director Lord Douro Non-Executive Director Ruggero Magnoni Non-Executive Director Josua Malherbe Non-Executive Director Frederick Mostert Chief Legal Counsel Simon Murray Non-Executive Director Alain Dominique Perrin Non-Executive Director Guillaume Pictet Non-Executive Director Norbert Platt Non-Executive Director Alan Quasha Non-Executive Director Maria Ramos Non-Executive Director Lord Renwick of Clifton Lead Independent Director Dominique Rochat Non-Executive Director Jan Rupert Manufacturing Director Jürgen Schrempp Non-Executive Director Martha Wikstrom Chief Executive Officer, Richemont Fashion & Accessories Members of the Group Management Committee Johann Rupert Executive Chairman & Chief Executive Officer Richard Lepeu Deputy Chief Executive Officer Gary Saage Chief Financial Officer Frederick Mostert Chief Legal Counsel Jan Rupert Manufacturing Director Martha Wikstrom Chief Executive Officer, Richemont Fashion & Accessories Giampiero Bodino Group Art Director Pilar Boxford Group Public Relations Director Bernard Fornas Chief Executive of Cartier Alan Grieve Director of Corporate Affairs Albert Kaufmann General Counsel Thomas Lindemann Group Human Resources Director Eloy Michotte Corporate Finance Director

Key management compensation disclosures as required by Swiss law The following disclosures on executive compensation are required by Swiss law. In determining the value of each component the Group has followed the valuation and measurement principles of International Financial Reporting. The amounts are in agreement with other IFRS information provided in this annual report.

98 Richemont Annual Report and Accounts 2012 Consolidated financial statements

Fixed components Variable components Salary and Post- short-term employment Short-term Long-term Share option employee benefits benefits incentives benefits cost* Total € € € € € € Board of Directors Johann Rupert 1 567 243 1 509 941 – – 491 266 3 568 450 Yves-André Istel 222 570 – – – – 222 570 Richard Lepeu 3 527 766 93 644 2 524 292 357 211 1 726 634 8 229 547 Gary Saage 1 808 228 111 202 987 206 137 389 632 790 3 676 815 Franco Cologni** 265 374 – – – – 265 374 Lord Douro 271 497 – – – – 271 497 Ruggero Magnoni** – – – – – – Josua Malherbe 210 205 – – – – 210 205 Frederick Mostert 1 333 209 136 490 710 460 231 793 897 897 3 309 849 Simon Murray 131 893 – – – – 131 893 Alain Dominique Perrin** 1 710 396 – – – – 1 710 396 Guillaume Pictet 164 867 – – – – 164 867 Norbert Platt 284 793 – – – – 284 793 Alan Quasha 164 867 – – – – 164 867 Maria Ramos*** 90 677 – – – – 90 677 Lord Renwick of Clifton 226 692 – – – – 226 692 Dominique Rochat 185 475 – – – – 185 475 Jan Rupert 828 577 77 826 770 886 247 300 821 732 2 746 321 Jürgen Schrempp 164 867 – – – – 164 867 Martha Wikstrom 1 481 595 58 423 647 114 158 393 304 527 2 650 052 Total 14 640 791 1 987 526 5 639 958 1 132 086 4 874 846 28 275 207

Group Management Committee 6 850 466 668 226 5 910 613 1 508 079 3 165 724 18 103 108 Total key management compensation 21 491 257 2 655 752 11 550 571 2 640 165 8 040 570 46 378 315

* The cost for share options is determined in accordance with IFRS 2, Share-based payment. Details of the valuation model and significant inputs to this model are found in note 36.

** Dr Franco Cologni, Mr Ruggero Magnoni and Mr Alain Dominique Perrin have formally waived their entitlement to receive any fees or compensation in respect of their duties as non-executive directors.

*** Compensation for the period from 7 September 2011, being the date of appointment to the Board, to 31 March 2012.

Richemont Annual Report and Accounts 2012 99 Consolidated financial statements

35. Related-party transactions continued (f) Key management compensation continued Key management compensation for the year ended 31 March 2011

Fixed components Variable components Salary and Post- short-term employment Short-term Long-term Share option employee benefits benefits incentives benefits cost* Total € € € € € € Board of Directors Johann Rupert 1 522 863 1 562 282 – – 852 229 3 937 374 Jean-Paul Aeschimann 59 979 – – – – 59 979 Yves-André Istel 119 958 – – – – 119 958 Richard Lepeu 2 793 847 88 769 1 382 826 257 202 1 292 754 5 815 398 Gary Saage ** 964 758 59 765 547 411 98 923 134 533 1 805 390 Franco Cologni 246 298 – – – – 246 298 Lord Douro 191 019 – – – – 191 019 Ruggero Magnoni*** – – – – – – Josua Malherbe 59 979 – – – – 59 979 Frederick Mostert **** 542 988 233 273 386 966 186 481 486 669 1 836 377 Simon Murray 89 969 – – – – 89 969 Alain Dominique Perrin*** 1 605 342 – – – – 1 605 342 Guillaume Pictet 44 984 – – – – 44 984 Norbert Platt 180 634 – – – – 180 634 Alan Quasha 89 969 – – – – 89 969 Lord Renwick of Clifton 119 958 – – – – 119 958 Dominique Rochat 44 984 – – – – 44 984 Jan Rupert 772 571 67 682 1 142 630 178 063 1 100 464 3 261 410 Jürgen Schrempp 89 969 – – – – 89 969 Martha Wikstrom 1 193 729 247 378 802 187 127 428 – 2 370 722 Total 10 733 798 2 259 149 4 262 020 848 097 3 866 649 21 969 713

Group Management Committee 6 730 993 1 132 249 5 888 777 2 500 958 3 903 448 20 156 425 Total key management compensation 17 464 791 3 391 398 10 150 797 3 349 055 7 770 097 42 126 138

* The cost for share options is determined in accordance with IFRS 2, Share-based payment. Details of the valuation model and significant inputs to this model are found in note 36.

** Compensation for the period from 8 September 2010, being the date of appointment to the Board, to 31 March 2011.

*** Since their appointment to the Board of Directors as non-executive directors, Mr Ruggero Magnoni and Mr Alain Dominique Perrin have formally waived their entitlement to receive any fees or compensation in respect of their duties as non-executive directors.

**** Compensation for the period from 8 September 2010, being the date of appointment to the Board, to 31 March 2011. The compensation of Dr Mostert for the period to 7 September 2010 is included in the total for Group Management Committee.

100 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 35. Related-party transactions continued (f) Key management compensation continued Stock option plan The Group operates a long-term share-based compensation plan whereby executives are awarded options to acquire shares at the market price on the date of grant. No awards under the stock option plan have been made to persons serving as non-executive directors. Details of options held by executive directors and members of the Group Management Committee under the plan are as follows: at 31 March 2012 Number of options Weighted average Granted Exercised grant price Earliest Latest 1 April 2011 in year in year 31 March 2012 CHF vesting period expiry date Board of Directors Johann Rupert 5 626 841 – – 5 626 841 12.41 Apr 2012-Jul 2013 June 2015 Richard Lepeu 1 509 313 250 000 (239 701) 1 519 612 27.93 Apr 2012-Jul 2017 June 2020 Gary Saage 131 659 150 000 ( 26 722) 254 937 42.60 Jul 2012-Jul 2017 June 2020 Frederick Mostert 622 201 75 000 – 697 201 28.35 Apr 2012-Jul 2017 June 2020 Jan Rupert 1 236 343 – – 1 236 343 20.71 Apr 2012-Jul 2014 June 2017 Martha Wikstrom – 100 000 – 100 000 54.95 Jul 2015-Jul 2017 June 2020

Group Management Committee Giampiero Bodino 351 187 30 000 ( 145 058) 236 129 29.13 Jul 2012-Jul 2017 June 2020 Pilar Boxford 78 251 15 000 ( 26 720) 66 531 33.14 Apr 2012-Jul 2017 June 2020 Bernard Fornas 466 678 – ( 144 522) 322 156 26.54 Apr 2012-Jul 2014 June 2017 Alan Grieve 265 297 12 000 ( 102 598) 174 699 28.56 Apr 2012-Jul 2017 June 2020 Albert Kaufmann 1 086 420 75 000 ( 123 016) 1 038 404 25.61 Apr 2012-Jul 2017 June 2020 Thomas Lindemann 276 744 75 000 ( 99 249) 252 495 34.27 Jul 2012-Jul 2017 June 2020 Eloy Michotte 461 981 24 000 ( 35 000) 450 981 22.96 Apr 2012-Jul 2017 June 2020 12 112 915 806 000 ( 942 586) 11 976 329

Highest paid compensation to a member of the management board The total level of compensation of the highest paid member of the Group Management Committee was € 8 229 547, which was in respect of Mr Richard Lepeu, Deputy Chief Executive Officer. Mr Lepeu’s compensation is disclosed as a member of the Board of Compagnie Financière Richemont SA. It is therefore excluded from the total compensation of the Group Management Committee. Compensation of advisory committees The Board has established a number of advisory committees. These committees comprise both executive and non-executive directors of the Board. The compensation of the individual members of these committees is disclosed above. Compensation for former executive directors During the year under review a former executive director (who is not a current member of the Group Management Committee) received € 0.1 million (2011: € 0.1 million) from the Group for services provided to an entity in which the Group is a joint venture partner.

Richemont Annual Report and Accounts 2012 101 Consolidated financial statements

35. Related-party transactions continued (f) Key management compensation continued Share ownership As at 31 March 2012, members of the Board and parties closely linked to them owned a total of 272 765 Richemont ‘A’ shares. Members of the Group Management Committee and parties closely linked to them held a total of 31 670 Richemont ‘A’ shares at that date. Mr Johann Rupert is the General Managing Partner of Compagnie Financière Rupert, which holds the 522 000 000 ‘B’ registered shares in the Company. Parties associated with Mr Johann Rupert and Compagnie Financière Rupert held a further 2 836 664 ‘A’ shares or ‘A’ share equivalents at 31 March 2012. The interest of individual directors and members of the Group Management Committee in Richemont ‘A’ shares is as follows:

at 31 March 2012 at 31 March 2011 Board of Directors of Compagnie Financière Richemont SA Franco Cologni 75 000 75 000 Lord Douro 18 000 18 000 Yves-André Istel 14 000 16 000 Richard Lepeu 150 000 – Alain Dominique Perrin – 74 000 Guillaume Pictet 10 265 10 265 Lord Renwick 4 000 4 000 Dominique Rochat 1 500 400 272 765 197 665 Group Management Committee Alan Grieve 30 000 30 000 Albert Kaufmann 1 670 1 670 304 435 229 335

Following the decision of the Annual General Meeting on 7 September 2011 to pay dividends of CHF 0.45 per ‘A’ bearer share and CHF 0.045 per ‘B’ registered share, dividends of CHF 24 904 395 were paid to the owners of the shares described in the paragraphs above. Mr Josua Malherbe, a non-executive director, does not hold any ‘A’ shares or ‘A’ share equivalents. Members of Mr Malherbe’s family have acquired and currently hold 14 067 ‘A’ share equivalents and are beneficiaries of trusts holding 210 002 ‘A’ shares or ‘A’ share equivalents at 31 March 2012. Mr Alain Dominique Perrin, a non-executive director, also has an indirect holding of 229 779 ‘A’ shares. Mr Jan Rupert, Group Manufacturing Director, is a director of a company which holds 2 375 005 ‘A’ shares. He is also one of a group of family members who are beneficiaries of certain trusts which are, directly or indirectly, shareholders in that company and which hold ‘A’ shares and ‘A’ share equivalents in their own right. Mr Jan Rupert is a trustee of certain of these trusts but is not in a position to control their investment decisions or to control the exercise of voting rights by those trusts. In addition, members of Mr Rupert’s family are also beneficiaries of certain companies that have acquired and currently hold 20 000 ‘A’ shares. Mr Jan Rupert has no beneficial interest in Compagnie Financière Rupert and shares referred to in the paragraph above do not form part of the interest held by Compagnie Financière Rupert and its associated parties. For the avoidance of doubt, Mr Johann Rupert, Group Executive Chairman and Chief Executive Officer and a cousin of Mr Jan Rupert, is not a director of the company referred to in the paragraph above and has no interest in its holding of ‘A’ shares. He is neither a trustee of the trusts referred to in the preceding paragraph nor a beneficiary of those trusts. Mr Alan Grieve, a member of the Group Management Committee, also serves as a director of certain private companies established when the Group was founded and linked to former investors in Compagnie Financière Rupert. These companies hold in total 9 855 099 ‘A’ shares. Mr Grieve has no beneficial interest in those companies or in the ‘A’ shares that they hold. These companies have no current connection with Compagnie Financière Rupert and are not associated in any way with Mr Johann Rupert. Loans to members of governing bodies As at 31 March 2012 there were no loans or other credits outstanding to any current or former executive or non-executive director, or member of the Group Management Committee. The Group policy is not to extend loans to directors or members of the Group Management Committee. There were also no non-business related loans or credits granted to relatives of any executive or non-executive director, or member of the Group Management Committee.

102 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 36. Share-based payment Equity-settled option plan The Group has a long-term share-based compensation plan whereby executives are awarded options to acquire shares at the market price on the date of grant. Awards under the stock option plan vest over periods of four to six years and have expiry dates, the date after which unexercised options lapse, of nine years from the date of grant. The executive must remain in the Group’s employment until vesting. The options granted as from 2008 onwards include a performance condition correlated to other luxury goods companies upon which vesting is conditional. A reconciliation of the movement in the number of share awards granted to executives is as follows: Weighted average exercise price in CHF per share Number of options Balance at 1 April 2010 20.41 36 802 223 Exercised 19.45 (6 710 918) Lapsed 24.04 (379 808) Expired 17.17 (11) Balance at 31 March 2011 20.58 29 711 486 Granted 54.95 1 607 700 Exercised 19.54 (4 988 361) Lapsed 25.24 (528 713) Balance at 31 March 2012 22.82 25 802 112

Of the total options outstanding at 31 March 2012, options in respect of 11 628 723 shares had vested and were exercisable (2011: 10 624 732 shares). The weighted average share price at the date of exercise for options exercised during the year was CHF 53.71 (2011: CHF 45.89). The following information applies to options outstanding at the end of each year:

Exercise Weighted average Number of Weighted average price exercise price options remaining contractual life 31 March 2012 CHF 8.73 – 10.59 CHF 8.94 1 035 015 2.1 years CHF 12.7 – 14.45 CHF 13.12 5 870 715 2.9 years CHF 18.01 CHF 18.01 2 883 318 2.2 years CHF 23.18 CHF 23.18 3 928 175 3.2 years CHF 32.79 CHF 32.79 3 715 570 4.2 years CHF 21.20 CHF 21.20 4 085 825 5.2 years CHF 23.55 CHF 23.55 2 683 794 6.2 years CHF 54.95 CHF 54.95 1 599 700 8.2 years 31 March 2011 CHF 8.73 – 10.59 CHF 9.08 1 436 143 1.2 years CHF 12.7 – 14.45 CHF 13.25 6 650 311 2.6 years CHF 18.01 CHF 18.01 4 911 701 3.2 years CHF 23.18 CHF 23.18 5 257 855 4.2 years CHF 32.79 CHF 32.79 4 345 282 5.2 years CHF 21.20 CHF 21.20 4 278 894 6.2 years CHF 23.55 CHF 23.55 2 831 300 7.2 years

The average fair value of options granted during the year determined using the Binomial model was CHF 22.13. The significant inputs to the model were the share price of CHF 54.95 at the grant date, the exercise price shown above, a standard deviation of expected share price returns of 44 %, an expected option life of five to seven years, a dividend yield of 0.8 % and a risk-free interest rate of 1.1 % to 1.6 %. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last six years. The amount recognised in profit or loss before social security and taxes for equity-settled share-based payment transactions was € 24 million (2011: € 30 million).

Richemont Annual Report and Accounts 2012 103 Consolidated financial statements

36. Share-based payment continued Modification during the year under review In March 2012, the Compensation Committee approved a modification to the expiry dates of a number of already vested options as follows:

Number of Latest Weighted average options expiry date strike price in CHF Original terms 4 341 902 30 June 2013 12.27 Modified terms 4 341 902 30 June 2015 12.27

The fair value of the options immediately before and after the modification was calculated using the Binomial model. The significant inputs into the model were the share price of CHF 54.20 on the date of modification, a standard deviation of expected share price returns of 44 % and a risk-free rate of return of 0.09 % to 0.24 %. The fair value of the options immediately after the modification exceeded the fair value immediately before. The incremental fair value of € 0.2 million has been recognised immediately. Cash-settled option plan The Group operates a cash-settled option plan, where ‘B’ shares of The Net-a-Porter Group Limited (‘Net-a-Porter’) are sold to the senior executive team of Net-a-Porter. The awards entitle the holders to an economic interest in the growth of Net-a-Porter above a threshold value. The shares carry a put right entitling the holders to sell all, but not some, of their ‘B’ shares on 31 March 2015 at the fair market value at the date of exercise (less the threshold value). There is an equivalent call right for Richemont to acquire the ‘B’ shares at the same price. During the year under review, 752 new shares were issued and 176 shares were repurchased by Net-a-Porter. The number of shares outstanding at 31 March 2012 was 3 363 (2011: 2 787). The weighted average threshold value is £ 458.01 (2011: £ 389.13). The shares have been valued using a discounted cash flow model, based on management forecasts and projections beyond the forecast period. The projections assume no change in the level of EBITDA as a percentage of sales, capital expenditure or working capital movements from management’s last forecast. The amount recognised in profit or loss before social security and taxes for cash-settled share-based payment transactions was € 24 million (2011: € 45 million). A liability of € 70 million (2011: € 43 million) is recognised as a long-term provision.

104 Richemont Annual Report and Accounts 2012 Consolidated financial statements

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 37. Joint ventures The Group has the following interests in joint ventures: • Richemont holds an interest of 50 % in Laureus World Sports Awards Limited, a company registered in the UK. The company manages the Laureus World Sports Awards, which honour the achievements of the world’s greatest sportsmen and women on an annual basis, and contributes to the Laureus Sport for Good Foundation, a charity registered in the UK which oversees the activities of Laureus Sport for Good Foundations around the world. The Group’s partner in Laureus World Sports Awards Limited is Daimler AG. • Richemont is a 50 % owner of Ralph Lauren Watch and Jewelry Company Sàrl. The joint venture entity designs and creates luxury watches and fine jewellery. The Group’s partner is the Ralph Lauren Corporation. The following amounts represent the Group’s share of the assets and liabilities and results of the joint ventures and are included in the statement of financial position and profit for the year. The figures are before elimination of intra-Group transactions and balances.

2012 2011 € m € m Statement of financial position Non-current assets 1 1 Current assets 17 17 Current liabilities (25) (19) Non-current liabilities (9) (6) (16) (7)

2012 2011 € m € m Statement of income Revenue 15 8 Operating loss (9) (5) Loss for the year (9) (5)

38. Ultimate parent company The directors regard Compagnie Financière Rupert, Bellevue, Geneva, Switzerland to be the Group’s controlling party, as 50 % of the voting rights of the Company are held by that entity.

39. Events after the reporting period A dividend of CHF 0.55 per share is proposed for approval at the Annual General Meeting of the Company, to be held on 5 September 2012. These financial statements do not reflect this dividend payable, which will be accounted for as an appropriation of retained earnings to be effected during the year ending 31 March 2013.

Richemont Annual Report and Accounts 2012 105 Consolidated financial statements

40. Principal Group companies Details of principal companies within the Group: Effective Share capital Country of incorporation Location Name of company interest (currency 000’s) Subsidiary undertakings Brazil Sao Paulo RLG do Brasil Ltda 100.0 % BRL 11 742 China Shanghai Alfred Dunhill (Shanghai) Trading Company Limited 100.0 % US$ 650 Shanghai Montblanc Commercial (China) Co. Limited 100.0 % CNY 40 000 Shanghai Richemont Commercial Company Limited 100.0 % CNY 1 182 700 France Paris Azzedine Alaïa 100.0 % € 250 Paris Chloé International 100.0 % € 6 000 Paris Lancel Sogedi 100.0 % € 27 520 Paris Société Cartier 100.0 % € 25 334 Paris Van Cleef & Arpels Holding France 100.0 % € 17 519 Germany Glashütte Lange Uhren GmbH 100.0 % € 550 Hamburg Montblanc – Simplo GmbH 100.0 % € 1 724 Munich Richemont Northern Europe GmbH 100.0 % € 13 070 Hong Kong Hong Kong Richemont Asia Pacific Limited 100.0 % HK$ 2 500 India Mumbai Richemont India Private Limited 100.0 % INR 168 000 Italy Milan Officine Panerai Marketing e Communicazione Srl 100.0 % € 90 Milan Richemont Italia SpA 100.0 % € 10 000 Japan Tokyo Richemont Japan Limited 100.0 % JPY 250 000 Jersey Jersey Richemont Luxury Group Limited 100.0 % CHF 4 722 900 Luxembourg Luxembourg Richemont International Holding SA 100.0 % CHF 911 971 Netherlands Amsterdam RLG Europe BV 100.0 % € 17 700 Russia Moscow Limited Liability Company RLG 100.0 % RUR 50 000 South Africa Bryanston Vendôme Distributors SA (Pty) Limited 100.0 % ZAR 4 000 Spain Madrid Richemont Iberia, SL 100.0 % € 6 005 Switzerland Bellevue Baume & Mercier SA 100.0 % CHF 100 Geneva Cartier International SA Genève 100.0 % CHF 500 Schaffhausen IWC International Watch Co. AG 100.0 % CHF 100 Le Sentier Manufacture Jaeger-LeCoultre SA 100.0 % CHF 100 Meyrin Manufacture Roger Dubuis SA 60.0 % CHF 10 000 Le Locle Montblanc Montre SA 100.0 % CHF 250 La Côte-aux-Fées Piaget SA 100.0 % CHF 128 Villars-sur-Glâne Richemont International SA 100.0 % CHF 1 007 500 Bellevue Richemont Securities SA 100.0 % CHF 100 Villars-sur-Glâne Richemont Suisse SA 100.0 % CHF 4 850 Geneva Vacheron & Constantin SA 100.0 % CHF 100 Villars-sur-Glâne Van Cleef & Arpels SA 100.0 % CHF 31 387 Turkey Istanbul Richemont Istanbul Luks Esya Dagitim A.S. 100.0 % TRY 8 821 United Arab Emirates Dubai Richemont (Dubai) FZE 100.0 % AED 9 000 United Kingdom London Alfred Dunhill Limited 100.0 % £ 235 421 London Cartier Limited 100.0 % £ 4 200 London James Purdey & Sons Limited 100.0 % £ 9 635 London Richemont Holdings (UK) Limited 100.0 % £ 248 672 London The Net-a-Porter Group Limited 93.0 % £ 6 United States of America Delaware Richemont North America Inc. 100.0 % US$ 117 159

Joint ventures Switzerland Vernier Ralph Lauren Watch and Jewelry Company Sàrl 50.0 % CHF 18 000 United Kingdom London Laureus World Sports Awards Limited 50.0 % € 954

106 Richemont Annual Report and Accounts 2012 Consolidated financial statements

To the General Meeting of Shareholders of Compagnie Financière Richemont SA, Bellevue, Geneva. As statutory auditor, we have audited the consolidated financial statements of Compagnie Financière Richemont SA, which comprise the statement of financial position, statement of comprehensive income, statement of cash flows, statement of changes in equity and notes (pages 54 to 106) for the year ended 31 March 2012. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (‘IFRS’) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended 31 March 2012 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (‘IFRS’) and comply with Swiss law. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (‘AOA’) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers SA Michael Foley Sara Gnoni Audit expert Audit expert Auditor in charge Geneva, 15 May 2012

Richemont Annual Report and Accounts 2012 107 Consolidated financial statements

Income statement for the year ended 31 March 2012 2011 Notes CHF m CHF m Income Dividend income 500.1 551.5 Interest income 13.8 8.6 Other income 0.6 0.3 514.5 560.4

Expenses General expenses 2,3 9.5 7.2 Financial expenses 4 2.4 11.3 11.9 18.5

Profit before taxation 502.6 541.9 Taxation 1.5 0.7 Net profit 501.1 541.2

Balance sheet at 31 March 2012 2011 Notes CHF m CHF m Long-term assets Investments 5 1 847.8 1 847.8 Long-term loans receivable from Group company 158.3 91.6 2 006.1 1 939.4 Current assets Short-term loan receivable from Group company – 68.7 Current accounts receivable from Group companies 1 411.4 1 024.0 Taxation 1.9 1.4 Other receivables 0.1 0.2 Cash and cash equivalents 0.5 0.6 1 413.9 1 094.9 3 420.0 3 034.3 Shareholders’ equity Share capital 7 574.2 574.2 Legal reserve 8 117.6 117.6 Reserve for own shares 9 739.8 497.9 Retained earnings 10 1 853.1 1 840.8 3 284.7 3 030.5 Current liabilities Accrued expenses 0.5 0.5 Current accounts payable to Group companies 132.3 0.9 132.8 1.4 Long-term liabilities 6 2.5 2.4 3 420.0 3 034.3

108 Richemont Annual Report and Accounts 2012 Company financial statements

Note 1 – General Basis of preparation of the financial statements The financial statements represent the financial position of Compagnie Financière Richemont SA (‘the Company’) at 31 March 2012 and the results of its operations for the year then ended, prepared in accordance with Swiss law and the Company’s articles of incorporation. Risk management disclosure The Company has a risk management process which gives consideration to both strategic and operational risks. All identified risks are quantified according to their probability of occurrence and potential impact and subsequently prioritised by Group Management. A consolidated risk report, which includes action plans prepared by the Group executive directly responsible for addressing the risk, is reviewed annually by the Audit Committee and the Board of Directors. Note 2 – General expenses General expenses include personnel costs of CHF 4.4 million (2011: CHF 3.4 million). Note 3 – Board and executive compensation disclosures Details of compensation required by the Swiss Code of Obligations, art. 663 and following, can be found in note 35 to the consolidated financial statements.

Note 4 – Financial expenses Financial expenses include CHF 2.0 million (2011: CHF 11.2 million) of exchange losses incurred on loans receivable from a Group company. Note 5 – Investments These comprise investments in subsidiary companies, which are stated at cost. 2012 2011 Company Domicile Purpose % ownership CHF m CHF m Bespoke Innovations Sàrl Switzerland Investment holding company 100 % 2.0 2.0 Richemont Holdings AG Switzerland Investment holding company 100 % 770.7 770.7 Richemont International Holding SA Luxembourg Investment holding company 100 % 459.0 459.0 Richemont International SA Switzerland Operating company 100 % 385.0 385.0 Richemont Luxury Group Ltd Jersey Investment holding company 100 % 231.0 231.0 Richemont Securities SA Switzerland Depository/issuer of Richemont South African Depository Receipts 100 % 0.1 0.1 1 847.8 1 847.8

Note 6 – Long-term liabilities Long-term liabilities include retirement benefit obligations in the amount of CHF 2.4 million (2011: CHF 2.2 million).

Richemont Annual Report and Accounts 2012 109 Company financial statements

Notes to the Company financial statements continued

Note 7 – Share capital 2012 2011 CHF m CHF m 522 000 000 ‘A’ bearer shares with a par value of CHF 1.00 each, fully paid 522.0 522.0 522 000 000 ‘B’ registered shares with a par value of CHF 0.10 each, fully paid 52.2 52.2 574.2 574.2

Note 8 – Legal reserve The legal reserve of CHF 117.6 million (2011: CHF 117.6 million) is not available for distribution. Note 9 – Reserve for own shares The reserve is created in respect of Richemont ‘A’ shares purchased by Richemont Employee Benefits Limited (‘REBL’), a subsidiary company. During the year REBL purchased 1 577 027 ‘A’ shares in the open market and acquired a further 6 454 664 ‘A’ shares through the exercise of call options (2011: 1 500 000 ‘A’ shares were purchased and a further 3 158 509 ‘A’ shares were acquired through the exercise of call options). During the year 2 140 928 ‘A’ shares (2011: 2 504 841 ‘A’ shares) were sold to executives under the Richemont stock option plan by REBL and a further 4 008 540 ‘A’ shares (2011: nil) were sold to a third party following the exercise of over-the-counter call options linked to the hedging programme. At 31 March 2012, following these transactions, REBL held 24 289 173 Richemont ‘A’ shares (2011: 22 406 950) with a cost of CHF 739.8 million (2011: CHF 497.9 million). In terms of the reserve for own shares established in respect of purchased shares, a net amount of CHF 241.9 million has been transferred into the reserve (2011: CHF 108.4 million) during the year. At 31 March 2012 call options to acquire 4 204 057 ‘A’ shares were outstanding. Note 10 – Retained earnings 2012 2011 CHF m CHF m Balance at 1 April 1 840.8 1 600.5 Dividend paid (246.9) (192.5) Net transfer to reserve for own shares (241.9) (108.4) Net profit 501.1 541.2 Balance at 31 March 1 853.1 1 840.8

Note 11 – Commitments and contingencies At 31 March 2012 the Company had issued guarantees in favour of Group companies for credit facilities up to a maximum of CHF 768.5 million (2011: CHF 904.5 million). The directors believe that there are no other contingent liabilities.

110 Richemont Annual Report and Accounts 2012 Company financial statements

Note 12 – Significant shareholders Pursuant to the requirements of the Swiss Federal Act on Stock Exchanges and Securities Trading and the associated ordinances, the Company received formal notification in December 2000 from Compagnie Financière Rupert that it held 522 000 000 ‘B’ registered shares, representing 50.0 % of the voting rights in the Company. In addition, Compagnie Financière Rupert has indicated that parties related to it held or controlled 2 836 664 ‘A’ bearer shares (either directly or through the medium of South African Depository Receipts), representing 0.27 % of the voting rights in the Company as at 31 March 2012. Also pursuant to the requirements of the Swiss Federal Act on Stock Exchanges and Securities Trading and the associated ordinances, during the year under review, the Company received notifications from two shareholders that they no longer held significant shareholdings representing in excess of 3 % of the voting rights. Public Investment Corporation Limited (‘PIC’), Pretoria, South Africa notified the Company on 13 July 2011 that accounts under its management held Richemont South African Depository Receipts equivalent to less than 3 % of the Company’s voting rights. PIC’s previous notification, on 22 February 2008, stated that its holding was equivalent to 3.13 % of the Company’s voting rights. On 9 September 2011, REBL notified the Company that its shareholdings and rights to acquire further shares were less than 3 % of the Company’s voting rights. The shares and rights had previously been acquired by REBL to hedge liabilities arising from the Group’s stock option plan. On 19 January 2012, REBL notified the Company that its holding of disposal positions arising from the Group’s stock option plan represented less than 3 % of the voting rights of the Company. As at 31 March 2012, Compagnie Financière Rupert is the only significant shareholder in the Company. Richemont Securities SA, a subsidiary of the Company, acts as depository in respect of Richemont South African Depository Receipts (‘DRs’), which are traded on the JSE Limited (the Johannesburg Stock Exchange). DRs trade in the ratio of ten DRs to each Richemont ‘A’ share. In its capacity as depository and on behalf of the holders of DRs, Richemont Securities SA holds one ‘A’ share in safe custody for every ten DRs in issue. Richemont Securities SA’s interest in Richemont ‘A’ shares is therefore non-beneficial in nature. All dividends attributable to the ‘A’ shares held in safe custody are remitted by Richemont Securities SA individually to holders of DRs and Richemont Securities SA acts as the approved representative of DR holders in voting at shareholders’ meetings of the Company. DR holders may provide Richemont Securities SA with voting instructions as to their holdings of DRs and Richemont Securities SA may only vote on behalf of those DR holders from whom it has received such instructions. At 31 March 2012, Richemont Securities SA held 110 176 739 Richemont ‘A’ shares (2011: 107 710 650 shares), representing some 21 % (2011: 21 %) of the ‘A’ shares, in safe custody in respect of DRs in issue.

Proposal of the Board of Directors for the appropriation of retained earnings at 31 March 2012

CHF m Available retained earnings Balance at 1 April 2011 1 840.8 Dividend paid (246.9) Net transfer to reserve for own shares (241.9) Net profit 501.1 1 853.1

Proposed appropriation The proposed dividend payable to Richemont shareholders will be CHF 0.55 per Richemont share. This is equivalent to CHF 0.55 per ‘A’ bearer share in the Company and CHF 0.055 per ‘B’ registered share in the Company. It will be payable to Richemont shareholders on 13 September 2012 in respect of coupon number 15, free of charges but subject to Swiss withholding tax at 35 %, at the banks designated as paying agents. The available retained earnings remaining after deduction of the dividend amount will be carried forward to the following business year.

The Board of Directors Geneva, 15 May 2012

Richemont Annual Report and Accounts 2012 111 Company financial statements

Report of the statutory auditor Report of the statutory auditor to the general meeting of Compagnie Financière Richemont SA, Geneva. Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of Compagnie Financière Richemont SA, which comprise the balance sheet, income statement and notes (pages 108 to 111) for the year ended 31 March 2012. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 March 2012 comply with Swiss law and the company’s articles of incorporation. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers SA Michael Foley Yazen Jamjum Audit Expert Auditor in charge Geneva, 15 May 2012

112 Richemont Annual Report and Accounts 2012 Company financial statements

Summary income statement 2008 2009 2010 2011 2012 € m € m € m € m € m Continuing operations Sales 5 290 5 418 5 176 6 892 8 867 Cost of sales (1 875) (2 001) (1 985) (2 498) (3 216) Gross profit 3 415 3 417 3 191 4 394 5 651 Net operating expenses (2 297) (2 449) (2 361) (3 039) (3 611) Operating profit 1 118 968 830 1 355 2 040 Net finance (costs)/income 47 (101) (137) (181) (235) Share of post-tax results of associated undertakings 1 3 4 101 (1) Profit before taxation 1 166 870 697 1 275 1 804 Taxation (194) (133) (94) (196) (264) Profit from continuing operations 972 737 603 1 079 1 540 Profit/(loss) from discontinued operations 592 339 (3) – – Profit for the year 1 564 1 076 600 1 079 1 540

Gross profit margin 64.6 % 63.1 % 61.6 % 63.7 % 63.7% Operating profit margin 21.1 % 17.9 % 16.0 % 19.7 % 23.0%

Sales and operating results by business segment 2008 2009 2010 2011 2012 € m € m € m € m € m Sales Jewellery Maisons 2 657 2 762 2 688 3 479 4 590 Specialist Watchmakers 1 378 1 437 1 353 1 774 2 323 Montblanc Maison 625 587 551 672 723 Other 630 632 584 967 1 231 5 290 5 418 5 176 6 892 8 867

Operating results from continuing operations Jewellery Maisons 765 777 742 1 062 1 510 Specialist Watchmakers 374 301 231 379 539 Montblanc Maison 126 69 79 109 119 Other 11 (39) (36) (34) (35) Operating profit from reportable segments 1 276 1 108 1 016 1 516 2 133 Unallocated corporate costs (158) (140) (186) (161) (93) Consolidated operating profit before finance and tax 1 118 968 830 1 355 2 040

Sales by geographic region 2008 2009 2010 2011 2012 € m € m € m € m € m Europe 2 284 2 363 2 099 2 588 3 097 Asia-Pacific 1 295 1 474 1 740 2 569 3 684 Americas 1 012 889 712 998 1 253 Japan 699 692 625 737 833 5 290 5 418 5 176 6 892 8 867

Richemont Annual Report and Accounts 2012 113 Five year record

Analysis of sales 2008 2009 2010 2011 2012 € m € m € m € m € m Sales by distribution channel Retail 2 214 2 304 2 385 3 469 4 656 Wholesale 3 076 3 114 2 791 3 423 4 211 5 290 5 418 5 176 6 892 8 867

Sales by product line Watches 2 555 2 569 2 483 3 320 4 404 Jewellery 1 254 1 374 1 333 1 685 2 248 Leather goods 498 481 483 602 721 Writing instruments 362 307 296 359 357 Clothing and other 621 687 581 926 1 137 5 290 5 418 5 176 6 892 8 867

Per share information (IFRS) 2008 2009 2010 2011 2012 Diluted earnings per share – from continuing operations € 1.710 € 1.312 € 1.076 € 1.925 € 2.756 – from discontinued operations € 1.040 € 0.604 (€ 0.005) – – € 2.750 € 1.916 € 1.071 € 1.925 € 2.756

2008 2009 2010 2011 2012 Ordinary dividend per share € 0.780 CHF 0.30 CHF 0.35 CHF 0.45 CHF 0.55 Closing market price Highest price CHF 82.80 CHF 30.04 CHF 41.73 CHF 57.25 CHF 59.55 Lowest price CHF 52.75 CHF 14.23 CHF 18.52 CHF 35.65 CHF 38.51

Earnings per share information for periods before 20 October 2008 was previously reported on a per unit basis. Other than market prices in 2009, no amounts have been re-presented to reflect the changes in the Group’s capital structure following the restructuring effected on 20 October 2008. For comparative purposes, market prices for 2008 may be multiplied by 43 %, in line with the ratio applied by SIX Swiss Exchange for all prices up to 20 October 2008.

Free cash flow 2008 2009 2010 2011 2012 € m € m € m € m € m Operating profit* 1 101 951 827 1 355 2 040 Depreciation, amortisation and other non-cash items 134 229 314 405 319 (Increase)/decrease in working capital (267) (361) 323 (64) (570) Other operating activities* 41 36 (5) (1) 10 Taxation paid (171) (179) (82) (202) (317) Net acquisition of non-current assets (251) (334) (114) (313) (529) Dividends from associated undertakings* 325 343 1 – – Free cash flow 912 685 1 264 1 180 953

* Including discontinued operations.

Exchange rates 2008 2009 2010 2011 2012 Average rates € : US$ 1.4173 1.4216 1.4144 1.3225 1.3772 € : JPY 161.59 143.07 131.30 112.67 108.78 € : CHF 1.6390 1.5597 1.5020 1.3338 1.2131

114 Richemont Annual Report and Accounts 2012 Five year record

COMPAGNIE FINANCIÈRE RICHEMONT SA Registered office: 50 chemin de la Chênaie Auditor: PricewaterhouseCoopers SA CP 30, 1293 Bellevue 50 avenue Giuseppe-Motta Geneva 1202 Geneva Switzerland Switzerland Tel: +41 (0) 22 721 3500 Fax: +41 (0) 22 721 3550

Company Secretary: Matthew Kilgarriff

‘A’ shares issued by Compagnie Financière Richemont SA are listed and traded on SIX Swiss Exchange, the Company’s primary listing, (Reuters ‘CFR.VX’/Bloombergs ‘CFR:VX’/ISIN CH0045039655) and are included in the Swiss Market Index (‘SMI’) of leading stocks. The Swiss ‘Valorennummer’ is 4503965. South African depository receipts in respect of Richemont ‘A’ shares are traded on the Johannesburg stock exchange operated by JSE Limited, the Company’s secondary listing, (Reuters ‘CFRJ.J’/Bloombergs ‘CFR:SJ’/ISIN CH0045159024).

Internet: www.richemont.com [email protected] [email protected]

Richemont Annual Report and Accounts 2012 115 Statutory information

The Annual General Meeting of shareholders of Compagnie Financière Richemont SA will be held at 2.00 pm at the Four Seasons Hotel des Bergues, 33 Quai des Bergues, 1201 Geneva, on Wednesday, 5 September 2012.

AGENDA 1. Business Report 1.1 The Board of Directors proposes that the General Meeting, having taken note of the reports of the auditor, approve the consolidated financial statements of the Group, the financial statements of the Company and the directors’ report for the business year ended 31 March 2012. 1.2 The Board of Directors proposes that the 2012 compensation report as per pages 48 to 52 of the Annual Report and Accounts 2012 be ratified (non-binding consultative vote). 2. Appropriation of profits At 31 March 2012, the retained earnings available for distribution amounted to CHF 1 853 152 867. The Board of Directors proposes that a dividend of CHF 0.55 be paid per Richemont share. This is equivalent to CHF 0.550 per ‘A’ bearer share in the Company and CHF 0.055 per ‘B’ registered share in the Company. This represents a total dividend payable of CHF 315 810 000, subject to a waiver by Richemont Employee Benefits Limited, a wholly owned subsidiary, of its entitlement to receive dividends on an estimated 24 million Richemont ‘A’ shares held in treasury. The Board of Directors proposes that the remaining available retained earnings of the Company at 31 March 2012 after payment of the dividend be carried forward to the following business year. 3. Discharge of the Board of Directors The Board of Directors proposes that its members be discharged from their obligations in respect of the business year ended 31 March 2012. 4. Election of the Board of Directors The Board of Directors proposes that the following members be re-elected on an individual basis to serve for a further term of one year: 4.1 Johann Rupert, 4.2 Dr Franco Cologni, 4.3 Lord Douro, 4.4 Yves-André Istel, 4.5 Richard Lepeu, 4.6 Ruggero Magnoni, 4.7 Josua Malherbe, 4.8 Dr Frederick Mostert, 4.9 Simon Murray, 4.10 Alain Dominique Perrin, 4.11 Guillaume Pictet, 4.12 Norbert Platt, 4.13 Alan Quasha, 4.14 Maria Ramos, 4.15 Lord Renwick of Clifton, 4.16 Dominique Rochat, 4.17 Jan Rupert, 4.18 Gary Saage, 4.19 Jürgen Schrempp and 4.20 Martha Wikstrom. 5. Election of the Auditor The Board of Directors proposes that PricewaterhouseCoopers be re-appointed for a further term of one year as auditor of the Company.

The financial statements of the Group and of the Company, the directors’ report and the related reports of the auditor for the year ended 31 March 2012, which are all contained in the Richemont Annual Report and Accounts 2012, will be available for inspection at the registered office of the Company from 25 July 2012 onwards. Printed versions of all such documents will be sent to shareholders upon request. The Richemont Annual Report and Accounts 2012 is also available on the Company’s website at www.richemont.com Cards for admission to the Annual General Meeting together with voting forms should be obtained by holders of bearer shares, upon deposit of their shares, from any branch of the following banks up to 31 August 2012: UBS AG, Lombard Odier & Cie, Bank J Vontobel & Co AG and Pictet & Cie. Deposited shares will be blocked until the close of the meeting. Admission cards will not be issued by the Company itself and no admission cards will be issued on the day of the meeting. A shareholder may appoint a proxy, who need not be a shareholder, as his or her representative at the meeting. Forms of proxy are provided on the reverse of the admission cards. In accordance with Swiss law, each shareholder may be represented at the meeting by the Company, by a bank or similar institution or by Maître Françoise Demierre Morand, Etude Gampert & Demierre, Notaires, 19 rue Général-Dufour, case postale 5326, 1211 Geneva 11, as independent representative of the shareholders. Unless proxies include explicit instructions to the contrary, voting rights will be exercised in support of the proposals of the Board of Directors. Proxy voting instructions must be received by the Company or the independent representative by 31 August 2012. Depository agents, as defined in Article 689d of the Swiss Company Law, are requested to indicate to the Company, as soon as possible and in any event to the admission control prior to the commencement of the meeting, the number and par value of the shares they represent together with the reference numbers of the relevant admission cards. Institutions subject to the Swiss Federal Act on Banks and Savings Banks of 8 November 1934 and professional fund managers and trustees may be considered as depository agents. The meeting will be held in English with a simultaneous translation into French.

For the Board of Directors:

JOHANN RUPERT RICHARD LEPEU EXECUTIVE CHAIRMAN AND CHIEF EXECUTIVE OFFICER DEPUTY CHIEF EXECUTIVE OFFICER

Bellevue Geneva, 23 July 2012

116 Richemont Annual Report and Accounts 2012 Notice of meeting

RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012 Designed and produced by Corporate Edge www.corporateedge.com Printed in South Africa by Shumani Printers (Pty) Ltd. The cover stock of this report is Trucard Recycled Matt, made from 50 % virgin fibre (100 % ECF) and 50 % recycled pulp from de-inked postconsumer waste and is FSC certified. The text paper in this report is Sappi Triple Green Silk. 60 % of the pulp used in the production of this paper is sugar cane fibre, which is the material remaining after raw sugar has been extracted from sugar cane. The bleaching process is elemental chlorine-free. The remaining pulp used in the production process comprises wood fibre obtained from sustainable and internationally certified forests, using independently-audited Chains of Custody. ISBN 978-2-9700709-4-8 TM: Our Maisons is a trademark of Richemont. © Richemont 2012

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RIC01_005 | Richemont Annual Report 2012 | Sign-off proof 2 | 25/05/2012